1ZMBEA2019002

IMF Country Report No.
19/263
ZAMBIA
2019 ARTICLE IV CONSULTATION—PRESS RELEASE;
August 2019 STAFF REPORT; AND STATEMENT BY THE EXECUTIVE
DIRECTOR FOR ZAMBIA
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions
with members, usually every year. In the context of the 2019 Article IV consultation with
Zambia, the following documents have been released and are included in this package:
• A Press Release including a statement by the Chair of the Executive Board.
• The Staff Report prepared by a staff team of the IMF for the Executive Board’s
consideration on July 24, 2019, following discussions that ended on April 30, 2019,
with the officials of Zambia on economic developments and policies. Based on
information available at the time of these discussions, the staff report was completed
on July 11, 2019.
• An Informational Annex prepared by the IMF staff.
• A Debt Sustainability Analysis prepared by the staffs of the IMF and the World Bank.
• A Statement by the Executive Director for Zambia.
• A Statement by the Staff Representative for Zambia.
The IMF’s transparency policy allows for the deletion of market-sensitive information and
premature disclosure of the authorities’ policy intentions in published staff reports and
other documents.
Copies of this report are available to the public from
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Washington, D.C.
© 2019 International Monetary Fund

Press Release No. 19/311 International Monetary Fund
FOR IMMEDIATE RELEASE 700 19th Street, NW
August 2, 2019 Washington, D. C. 20431 USA
IMF Executive Board Concludes 2019 Article IV Consultation with Zambia
On July 24, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the
Article IV consultation1 with Zambia.
Zambia’s development strategy has focused on a rapid-scaling up of public investment to address

the country’s infrastructure needs. While public investment has increased sharply, economic
growth remains well below levels seen earlier this decade and is estimated at 3.7 percent in 2018.
Inflation averaged 7 percent in 2018, but a depreciation of the currency late in 2018 and again
this spring coupled with food price rises has pushed inflation above 8 percent. Fiscal revenues
exceeded budget targets in 2018, but the deficit widened above 10½ percent on a commitment
basis (over 8 percent of GDP on a cash basis) due to a rising interest bill and a surge in public
investment reflecting faster than expected execution of public investment projects. Total public
and publicly-guaranteed (PPG) debt including arrears at end-2018 was 78 percent of GDP. The
current account deficit widened to 2.6 percent of GDP in 2018 due to higher imports and debt
service, while reserves declined from 2.4 months of import cover in 2017 to 1.9 months at end-
2018.
The outlook is clouded by the ongoing drought and heightened debt vulnerabilities. Growth is
projected to slow to 2 percent in 2019, reflecting a decline in mining sector activity in an
uncertain environment for mining companies and the drought’s impact on hydro power
production. Absent significant policy adjustments, growth is likely to remain subdued over the
medium term as expenditure arrears and an ongoing forced adjustment in response to increasing
debt-related pressures weigh on the private sector. Inflation is projected to remain above the top
of the Bank of Zambia’s (BoZ) target band in 2019 and 2020. The BoZ increased the policy rate
by 50 bps to 10.25 percent in May. While the central bank has moved to shore up reserves as
market conditions have permitted, reserves are projected to decline to 1.6 months of import cover
by end-2019. Key risks include the uncertain impact of the drought, a potential tightening of
1
Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually
every year. A staff team visits the country, collects economic and financial information, and discusses with officials
the country's economic developments and policies. On return to headquarters, the staff prepares a report, which
forms the basis for discussion by the Executive Board.
(continued…)
global financial conditions, a further escalation in trade tensions, and the uncertain growth
dividend from recent infrastructure investments.
Executive Board Assessment2
Executive Directors agreed with the thrust of the staff appraisal. They noted the deterioration in
macroeconomic outcomes in Zambia and heightened vulnerabilities due to the ongoing drought
and recent policy slippages. They expressed concern that public debt and debt service have
increased rapidly due to heavy reliance on non-concessional debt to finance large infrastructure
investment, while growth has lagged, thus putting Zambia at high risk of external and public debt
distress. Against this background, Directors emphasized the urgency of reforms and of a firm
commitment to implement them.
Directors noted that under current policies public debt is on an unsustainable path, and ongoing
financing constraints have started to force the inevitable fiscal adjustment to occur in a disorderly
way, with mounting expenditure arrears. They cautioned that there is a narrow window for
tackling fiscal challenges in an orderly and planned manner. This would require a large
front-loaded and sustained fiscal adjustment centered on stronger control and prioritization of
public investment projects and postponing the contracting of new non-concessional debt,
accompanied by enhanced revenue mobilization and the scaling back of exemptions and tax
expenditures, while reducing domestic expenditure arrears. Directors stressed that the adjustment
strategy should aim to minimize drag on growth and contain the impact on priority social
spending. Some Directors also urged the authorities to carefully consider the benefits and
disadvantages of shifting from a value-added tax to a sales tax.
Directors welcomed the Cabinet decision in late May to indefinitely postpone the contracting of
all new non-concessional loans, cancel some committed but undisbursed loans and enhance the
control and management of disbursements of foreign-financed loans, and to strictly adhere to
public financial management rules under the 2018 PFM Act. Directors emphasized that strong
actions would be needed to reduce debt-related vulnerabilities and called for continued efforts to
enhance debt management and transparency. They urged the authorities to address weaknesses in
procurement and in project selection and management to ensure prioritization and greater
investment efficiency. They also stressed that stronger procedures are needed to ensure that
budget execution reflects the authorities’ fiscal goals. Directors noted the importance of ongoing
and future technical assistance in enhancing the authorities’ capacity in these areas.
Directors welcomed the recent monetary tightening by the Bank of Zambia (BoZ). They
underscored the important role for forward-looking monetary policy in securing macroeconomic
2
At the conclusion of the discussion, the Acting Managing Director, as Chairman of the Board, summarizes the
views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any
qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.
stability and supporting reserves, in conjunction with a reorientation of the fiscal stance. They
commended BoZ’s actions to implement the recommendations of the 2017 FSAP, including
strengthening its supervisory capacity and enhancing the crisis preparedness framework.
Directors urged the authorities to closely monitor pressures from the macrofinancial linkages
between the financial system and the sovereign. They also recommended continuing to address
nonperforming loans.
Directors saw potential for growth to accelerate over the medium term with the appropriate fiscal
adjustment. They emphasized that achieving inclusive growth and reducing poverty will require
a steady focus on improving the investment climate, promoting productivity and human capital,
and addressing the risk of corruption. They advised the authorities to develop proactive strategies
to respond to the drought and climate-related risks and to promote well-functioning support
programs in the agricultural sector to enhance resilience.
Zambia: Selected Economic Indicators, 2017–24
2017 2018 2019 2020 2021 2022 2023 2024

Proj.
(Percentage change, unless otherwise indicated)

National account and prices
GDP growth at constant
prices 3.5 3.7 2.0 1.7 1.7 1.6 1.5 1.5
Mining 3.0 6.3 -2.0 2.0 2.0 3.0 3.0 3.0
Non mining 3.6 3.4 2.5 1.7 1.7 1.4 1.3 1.3
GDP deflator 10.1 9.5 10.0 9.7 8.2 8.3 8.0 7.7
GDP at market prices
(millions of kwacha) 246,252 279,441 313,496 349,831 385,196 423,750 464,432 507,929
Consumer prices
Consumer prices
(average) 6.6 7.0 9.9 10.0 8.0 8.0 8.0 8.0
Consumer prices (end of
period) 6.1 7.9 12.0 8.0 8.0 8.0 8.0 8.0
External sector
Terms of trade
(deterioration -) 16.0 -3.8 -6.4 -1.5 0.3 0.1 -0.2 -1.1
Average exchange rate
(kwacha per U.S. dollar) 9.5 10.5 … … … … … …
(percentage change;
depreciation +) -7.7 9.9 … … … … … …
Money and credit

Domestic credit to the
private sector 5.2 16.7 7.5 7.9 7.9 6.2 6.9 7.1
Reserve money (end of
period) -25.6 -0.6 10.3 13.4 11.0 11.9 11.6 10.5
Broad Money (M3) 21.4 16.5 11.9 11.0 10.1 11.0 10.7 10.5
(Percent of GDP, unless otherwise indicated)

National accounts
Gross investment 41.0 43.3 41.1 40.2 37.3 36.6 36.0 35.7
Government 5.5 8.6 7.3 8.4 6.9 6.5 6.1 6.1
Private 35.5 34.8 33.8 31.9 30.5 30.2 29.9 29.6
National savings 39.3 40.7 37.5 36.8 34.4 34.0 33.7 33.7
External current account
balance -1.7 -2.6 -3.6 -3.4 -2.9 -2.6 -2.3 -2.0
Central government budget

Revenue 17.5 19.1 19.4 19.7 19.8 19.8 19.7 19.7
Taxes 14.8 15.8 15.7 15.9 16.0 16.0 15.9 15.9
Grants 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1
Other revenue 2.5 3.1 3.5 3.7 3.7 3.7 3.8 3.8
Expenditure 25.0 27.4 24.2 24.8 23.3 22.9 22.6 22.4
Expense 19.4 18.8 16.8 16.4 16.4 16.4 16.5 16.3
Net acquisition of
nonfinancial assets 5.5 8.6 7.3 8.4 6.9 6.5 6.1 6.1
Fiscal balance (cash basis)2 -7.5 -8.3 -4.8 -5.1 -3.4 -3.1 -2.9 -2.6
Excluding grants -7.7 -8.5 -5.0 -5.2 -3.6 -3.2 -3.0 -2.7
Fiscal balance
(commitment basis)3 -6.8 -10.7 -9.0 -5.6 -4.0 -3.1 0.0 -5.6
Net acquisition of financial

assets 0.3 -0.7 0.0 0.0 0.0 0.0 0.0 0.0
Domestic 0.3 -0.7 0.0 0.0 0.0 0.0 0.0 0.0
Foreign 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Net incurrance of liabilities 8.1 7.6 4.8 5.1 3.4 3.1 2.9 2.6
Domestic 5.2 2.7 1.0 0.8 0.8 0.8 0.8 0.7
Foreign 2.9 4.9 3.9 4.3 2.7 2.3 2.1 1.9
External sector
Current account balance -1.7 -2.6 -3.6 -3.4 -2.9 -2.6 -2.3 -2.0
Gross International Reserves
(months of prospective imports) 2.4 1.9 1.6 1.3 0.9 0.6 0.6 0.5
Excluding FDI-financed
imports 2.5 2.0 1.7 1.3 1.0 0.6 0.6 0.6
Public debt (Percent of GDP)
Total central government
debt, gross (end-period) 65.5 78.1 91.6 95.5 98.0 97.6 96.7 95.1
External 38.2 48.1 59.9 65.6 69.5 70.8 71.5 71.3
Domestic 27.3 30.0 31.7 29.8 28.5 26.8 25.2 23.8
Sources: Zambian authorities; and IMF staff estimates and projections.

1
Excludes Zimbabwe.
2
Measured from total financing below the line.
3
Adjusted for the accumulation/clearance of VAT refund claims and arrears relating to FRA, FISP, subsidies, public investment
projects, and pensions.

ZAMBIA
STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION
July 11, 2019
KEY ISSUES
Context. Zambia’s development strategy has targeted a rapid scale-up of public
investment to address infrastructure needs. This has resulted in large fiscal deficits,
financed by nonconcessional debt and the accumulation of domestic arrears,
adversely impacting the private sector. Recent efforts to adjust the fiscal stance have
delivered some improvement in revenues, but deficits have continued to rise
following faster-than-budgeted execution of foreign-financed capital spending. With
the anticipated growth dividend yet to materialize, the debt burden has risen sharply,
resulting in currency weakness and rising local borrowing costs that have further
pushed up the interest bill. Reserve coverage has fallen to 1.7 months of imports.
Outlook and Risks. The path forward is very narrow. With the outlook already
subdued, the drought in the south and west is further weighing on growth, via
agriculture and the heavy dependence on hydro power, placing vulnerable groups at
risk. While tightening cash constraints are forcing some fiscal adjustment, Zambia’s
public debt under current policies is on an unsustainable path. Zambia has remained
current on debt service obligations, but a significant reorientation of the fiscal policy
stance is needed to preserve macroeconomic stability and begin reducing debt-
related vulnerabilities. With an end of the drought and progress addressing arrears,
growth would accelerate in the medium term. However, risks would remain elevated.
Key Policies. A large, frontloaded, and sustained fiscal effort is needed to bring debt
down to safer levels. This should include a moratorium on contracting new external
non-concessional borrowing, steps to raise revenues, halt the buildup of domestic
expenditure arrears, and to better prioritize public investment projects. Avoiding too
harsh a drag on growth or priority social spending is key, and effective responses are
needed to the drought. The authorities agreed on the need for action to restore
stability and reduce debt accumulation. Decisive steps forward to build confidence
and deliver meaningful fiscal adjustment will be essential. Appropriately tight
monetary policy also has a role to play in securing stability. Reserves should be
replenished over the medium term. Steady attention to the business environment is
also needed to support private investment going forward.
ZAMBIA
Approved By Discussions were held in Lusaka from April 16–30. The staff team
David Robinson (AFR) comprised Ms. Goodman (head and SPR), Messrs. Kalonji, Gupta,
and Martin Sommer Pondi Endengle (all AFR), and Li (SPR). Mr. Robinson (Deputy
(SPR) Director, AFR) joined the mission’s concluding policy discussions.
Mr. Mwansa (Economist, Office of the Resident Representative)
assisted the mission. Ms. Mannathoko (Alternative Executive
Director) and Mr. Sitima-wina (both OED) participated in policy
discussions. Staff met Minister of Finance Margaret Mwanakatwe,
Bank of Zambia (BoZ) Governor Denny Kalyalya, other senior
government and BoZ officials, members of parliament, senior
officials of selected parastatals, as well as representatives of the
private sector, labor unions, civil society organizations, and Zambia’s
development partners. Bakar Ould Abdallah, Krisztina Fabo, Cleary
Haines and Sandrine Ourigou (all AFR) assisted from headquarters.
CONTENTS
CONTEXT_________________________________________________________________________________________ 4
RECENT ECONOMIC DEVELOPMENTS __________________________________________________________ 5
OUTLOOK AND RISKS _________________________________________________________________________ 10
POLICY DISCUSSIONS _________________________________________________________________________ 11

A. Reducing Debt-Related Vulnerabilities ________________________________________________________12
B. Strengthening PFM to Anchor Fiscal Sustainability ____________________________________________15
C. Strengthened Debt Management and Market Development __________________________________16
D. Enhancing Monetary Policy and Operations __________________________________________________17
E. Securing Financial Stability ____________________________________________________________________18
F. Achieving Higher and More Inclusive Growth _________________________________________________19
G. Capacity Building and Statistics _______________________________________________________________21
STAFF APPRAISAL _____________________________________________________________________________ 22
BOX
1. Impact of Drought and Other Climate-Related Shocks _________________________________________ 6
FIGURES
1. Recent Developments _________________________________________________________________________24
2. Fiscal Developments___________________________________________________________________________25
3. External Sector ________________________________________________________________________________26
4. Monetary & Financial Developments __________________________________________________________27
2 INTERNATIONAL MONETARY FUND

ZAMBIA
TABLES
1. Selected Economic Indicators, 2016–24 _______________________________________________________29
2a. Fiscal Operations of the Budgetary Central Government, 2016–24 (Millions of kwacha) ______30
2b. Fiscal Operations of the Budgetary Central Government, 2016–24 (Percent of GDP) _________31
3. Monetary Accounts, 2016–24 (Millions of kwacha) ____________________________________________32
4a. Balance of Payments, 2016–24 (Millions of U.S. dollars) ______________________________________33
4b. Balance of Payments, 2016–24 (Percent of GDP) _____________________________________________34
5. Financial Soundness Indicators, 2008–18 (Percent) ____________________________________________35
ANNEXES
I. Main Recommendations of the 2017 Article IV Consultation and FSAP ________________________36
II. External Sector Assessment____________________________________________________________________40
III. Risk Assessment Matrix _______________________________________________________________________47
IV. Macro-Financial Linkages _____________________________________________________________________50
V. Mining Sector _________________________________________________________________________________57
VI. Institutions and Governance __________________________________________________________________59
VII. Capacity Development Strategy Note ________________________________________________________62
INTERNATIONAL MONETARY FUND 3

ZAMBIA
CONTEXT
1. Zambia is facing slowing growth
Public Investment and Debt
and acute vulnerabilities. The growth Public Investment and Debt
(in(inpercent
percent ofofGDP)
GDP)
slowdown seen since 2011 reflects a 9 80
Total public debt (RHS) Public investment
protracted fall in copper prices and severe 8 70
droughts in 2015/2016 and 2018/2019 that 7 60

6
constrained hydropower electricity 5
50
40
generation and lowered agriculture output. 4
30
An expansionary fiscal stance financed by 3
2 20
nonconcessional borrowing and domestic
1 10
expenditure arrears has resulted in a rapid 0 0
increase in debt and negative spillovers to 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Prel.
the private sector. Reflecting these Sources: Zambia authorities and IMF estimates and calculations.
Sources: Zambian authorities and IMF estimates and calculations.
vulnerabilities, Eurobond spreads rose to

1,575 in early June.
2. Presidential elections are due in 2021. The Patriotic Front Party came into office in 2011,
retaining office in the 2016 elections, and has pursued the development strategy elaborated in
Zambia’s Vision 2030 long-term development plan and the Seventh National Development Plan
(7NDP). This is centered on a significant ramping up of infrastructure spending, notably to extend the
road network on which Zambia—a landlocked country—significantly relies.
3. Poverty and inequality are among the highest in SSA. The poverty rate has risen since the
early 2000s, though it declined somewhat during 2010–15, while the GINI coefficient also has risen.
Unemployment stood at 12.5 percent at the end of 2018. In addition, Zambia currently hosts over
70,000 refugees from neighboring countries, adding pressure on government resources.
Sub-Saharan Africa: Poverty Headcount Sub-Saharan Africa: GINI Index

(Lower is better) (Lower indicates a better income distribution)
Source: WEO, World Bank’s WDI, and IMF staff estimates.

ZAMBIA
4. Implementation of past IMF policy advice has been limited (Annex I).1 Staff
recommendations to rein in the fiscal deficit and reduce debt vulnerabilities were not implemented.
Structural reforms in public financial management and public investment were delayed. Approval of
the Public Finance Management Act in 2018 should help strengthen budget execution. However,
accompanying legislation needed to support implementation, promote transparency, and introduce
fiscal risk management remains pending (e.g. the Planning & Budgeting Act and the Loans and
Guarantees Act). Fuel subsidies were eliminated in 2017, and price adjustments continue to be made,
while electricity tariffs were adjusted to start the process of cost recovery. In addition, the Bank of
Zambia (BoZ) has made good progress in strengthening the monetary policy framework and
reforming the regulatory, supervision, and crisis frameworks, though enforcement has lagged.
RECENT ECONOMIC DEVELOPMENTS

5. Economic activity has remained subdued even as public investment increased. In 2018,
growth ticked up to 3.7 percent from 3.5 percent in 2017, driven by a modest expansion in
telecommunications, financial and insurance activities, wholesale and retail trade, and mining. With a
drought in the southern and western parts of the country, agriculture’s contribution was negative.
(Box 1). The growth impact from the significant ramping up of public investment has been muted by
the low efficiency and high import content of public investment and a continuing build-up of public
sector expenditure arrears that has hampered private sector activity.
6. Inflation rose in 2018, reflecting price increases in food and fuel and the large
exchange rate depreciation. The kwacha depreciated by 20 percent last year, mostly in September,
reflecting a weakening of Zambia’s economic fundamentals and downgrades by all major
international rating agencies amid broader EM pressures. Year-on-year inflation hovered around the
upper end of the BOZ’s target band (6–8 percent) in late 2018, rising to 8.1 percent in May 2019 due
to increasing food prices and renewed exchange rate pressures. In light of rising inflationary
pressures, the Monetary Policy Committee (MPC) increased the policy rate by 50 basis points to
10.25 percent at its May meeting.
7. Revenues performed strongly in 2018, but the deficit rose to above 10½ percent of
GDP reflecting a further increase in public investment and a rising interest bill. Despite the
rationalization of public investment announced in June 2018 through a moratorium on projects less
than 80 percent completed, foreign-financed capital expenditure for the year exceeded budget
targets by 3½ percentage points of GDP. Interest payments reached almost 20 percent of total
spending. A combination of tighter domestic debt markets and structural weaknesses in expenditure
controls led to an accumulation of about 1½ percent of GDP in domestic arrears. In addition, almost
a percent of GDP in audited but unpaid VAT refund claims accumulated. The cash deficit widened
slightly to 8.3 percent of GDP from 7.7 percent in 2017.
1
The Executive Board completed the last Article IV consultation in October 2017.

ZAMBIA
Box 1. Impact of Drought and Other Climate-Related Shocks

Climate-related shocks are impacting the current growing season (October 2018-April 2019) and
hydroelectricity generation. The drought hitting southern Africa is impacting southern and western Zambia, while
flash floods have occurred in the north. Agricultural activity
Estimated Maize Production
contracted by 21 percent in 2018, and the most recent Estimated Maize Production
(million
(millionMT)
MT)
Crop Forecast Survey projects a 16 percent drop in 4 3.61
agricultural production for this growing season. With 3

2.39
drought affecting Lusaka and Central provinces, which 2

2.00
account for about one-third of the national maize output, 1
production of the country’s principal food staple in 2019 is 0

2017 2018 2019
estimated to be roughly 55 percent of 2017 levels. The Source: CSO.
Source: CSO.
power deficit is projected to average roughly 13 percent of
Q2-Q4 average load, and ZESCO, the national utility, began implementing four hours of daily load-shedding in early
June. A limited regional supply of electricity for import and ZESCO’s financial weakness may complicate the response
to this shock.
The rural population is particularly at risk. The vast majority of the rural population depends on agriculture, which
directly or indirectly represents more than 50 percent of total employment while contributing under 10 percent of
GDP. It is dominated by small and medium scale farms that heavily rely on rainfall as irrigation systems are still lacking.
Zambia’s high levels of rural poverty (77 percent) amplify the impact of such shocks. The World Food Program
estimates as many as 1.3 million people may require humanitarian assistance between July 2019 and February 2020
due to reduced incomes and higher food prices, with food security hotspots already emerging in drought-affected
districts.
The government’s short-term response is centered on the Food Reserve Agency (FRA), while maize exports
have been banned. The FRA manages a national food reserve, buying and selling maize to ensure food security in
times of shortages, reduce the volatility of grain prices, and provide liquidity in the market. The authorities expect
current maize stocks to be adequate to ensure food security in 2019. Past experience indicates inefficiencies associated
with FRA’s involvement in the market and that its price stabilizing policies disproportionately benefit the relatively
better-off in procurement and sales operations.1 Looking forward, the authorities see increasing larger scale
agricultural production in the northern part of the country as a way to improve food security.
Steps are underway to improve Zambia’s resilience to weather-related shocks and food security, supported by
development partners. Zambia experienced 3 droughts and 12 floods since 2000. Average annual temperatures have
also increased by 1.3 degrees since 1960. The government response has focused on subsidy programs, with the result
that Zambia has become an overall surplus producer for maize. Increasing agricultural productivity will require
increased investment in irrigation systems (supported by the World Bank), the adoption of new technologies, and
enhancing farmers’ education and market information. In 2017, the AfDB launched a climate-resilient livestock
management project to improve smallholder livestock production and productivity, create market linkages, and
increase household income.
_________________________________
1
See World Bank, Zambia Economic Brief, Volume 9, June 2017.
Contributors: World Bank Poverty and Equity Global Practice and IMF staff.

ZAMBIA
8. Domestic markets have tightened, but non-resident investors have maintained their
exposure. Starting in mid-2018, treasury securities auctions were regularly undersubscribed. With
yields rising sharply and reaching around 20 percent on T-bills and government bonds in September,
the government did not roll over the full amount of maturing treasury bills in 2018, repaying
1.9 billion Kwacha (0.6 percent of GDP) on a net basis. Government bonds auctions were also
undersubscribed but were complemented with private placements of around 4.2 billion Kwacha.2
While foreign investors have not been active participants in primary auctions since mid-2018, they
have broadly maintained their exposure and recently increased their activity in the secondary market.
Domestic Debt Market
T-Bills Allocation Amount and Yield Bonds Allocation Amount and Yield
Non-Resident Holding of Government Securities Policy and Lending Rates and Yields on Debt Issuance
Sources: Bank of Zambia and IMF staff calculations.
2
Around 2 billion Kwacha was raised from NAPSA and the remaining amount from commercial banks.

ZAMBIA
9. Lending rates have remained elevated. From early 2017 to March 2018, the monetary
policy rate and the statutory reserve ratio (SRR) were progressively lowered by a cumulative 450 bps
and 1000 bps respectively prior to the recent policy rate increase. Despite this significant easing,
lending rates remained high as commercial banks benchmarked their lending rates on rising
government yields. As during the 2015-16 crisis, many commercial banks have sought to maintain
high liquidity, enhancing their resilience to growing macroeconomic vulnerabilities (Table 7).
Credit Growth and Non-Performing Loans
Source: Bank of Zambia and IMF Staff Calculations.
10. Stresses from the sovereign-financial nexus have increased (Annex IV). High levels of
domestic arrears3 are exerting pressure on private sector creditworthiness, slowing the decline in
NPLs and holding back credit growth4 and private sector-led economic activity. Recent delays in
remitting pension contributions and payroll-based deductions for civil servants’ loan repayments
could increase liquidity pressures in the financial system and boost NPLs at micro-financial
institutions (MFIs), which provide large share of loans to individuals and play a vital role in financial
inclusion.
3
The stock of domestic expenditure arrears was K15.6 billion (5½ percent of GDP) at end-2018.
4
The September 2018 increase in credit to the private sector reflects exchange rate depreciation and the high share
of foreign currency denominated loans in total loans (around 40 percent at end-2018). Credit in domestic currency
increased by 3 percent in real terms.

ZAMBIA
Sovereign – Financial Nexus: Intensifying Links

Domestic arrears
Delayed employees' loan repayments

Micro-Financial
Institutions
Increased NPLs
Higher lending rates
Less credit
Increased financing demands Lower investment of NAPSA Real Economy
Sovereign Banking Sector
Decreased deposits
Feedback to financial
Increased financing demands sector
Pension Fund Rise in NPLs
Delayed pension contributions (NAPSA) Less deposits
Source: IMF staff.

Note: Red indicates direct exposure and brown indicates indirect exposure.
Source: IMF staff.
11. Public sector indebtedness has continued to increase, with the stock of public and
publicly guaranteed (PPG) debt reaching 78 percent of GDP at end 2018 from 65.5 percent in
2017, two-thirds of which is Text Table 1. Zambia: Stock of Public and Publicly
held by foreign creditors.5 Guaranteed Debt (2013-18) (billions of U.S. dollars)
External debt increased from 2013 2014 2015 2016 2017 2018
$9.5 billion (38 percent of GDP) Total public debt

External public debt
7.4
3.8
9.4
5.4
10.4
7.3
13.2
8.0
16.3
9.5
18.3
11.3
in 2017 to $11.3 billion Multi/pluri-laterals

o.w. IMF
1.5
0.4
1.5
0.3
1.5
0.3
1.6
0.2
1.7
0.1
1.9
0.1
(48 percent of GDP) in 2018, Bilaterals

Paris Club
1.2
0.1
1.5
0.2
2.0
0.2
2.4
0.2
2.7
0.1
3.0
0.1
reflecting project Non-Paris Club 1.1 1.4 1.8 2.2 2.6 2.9
Commercial 0.8 1.8 3.2 3.2 4.3 5.1
disbursements and the Guarantees 0.3 0.6 0.7 0.8 0.7 1.2
Domestic public debt 3.6 4.0 3.1 5.3 6.8 7.0
depreciation in late 2018. Treasury bills 1.6 1.5 0.9 1.0 2.0 1.5
Treasury bonds 1.6 1.6 0.9 1.4 2.8 3.3
External PPG debt service Others (incl. supplier arrears) 0.4 1.0 1.2 2.8 1.9 2.1
increased from $0.5 billion in Memo: foreign-held LC debt 1/

Memo: total public debt to GDP (%)
0.3
27.1
0.4
36.1
0.2
62.3
0.6
60.7
0.9
65.5
0.7
78.1
2017 to $0.9 billion in 2018 1/ Included under domestic debt in this text table but considered external debt in the DSA, which
is conducted on a residency basis.
(21¾ percent of government
Source: Zambian authoritites and IMF staff estimates.
revenues) as grace periods on
several project loans ended.
12. Zambia’s external position weakened in 2018. The current account deficit widened
modestly to 2.6 percent of GDP owing to higher imports and interest payments, despite a recovery in
copper exports on higher prices. FDI contracted as foreign firms repatriated earnings and new
investment remained subdued against the uncertain outlook. Foreign portfolio investors, who earlier
had been increasing their participation in domestic primary debt markets, broadly maintained their
exposures while local commercial banks continued to maintain dollar liquidity overseas. These
imbalances in trade and financial flows led to a sharp decline in FX reserves—from 2.4 months of
import cover in 2017 to 1.9 months in 2018. Rapidly rising public sector external indebtedness has
5
The PPG debt stock includes outstanding central government direct and guaranteed debt (including budget
expenditure arrears), consistent with the authorities’ official debt coverage. The Debt Sustainability Analysis (DSA)
uses a broader debt coverage which includes nonguaranteed external debt of ZESCO (see accompanying DSA for
more details) and totaled 80¾ percent of GDP at end-2018.

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led to a deteriorating international investment position, putting pressure on the exchange rate.
Considering the challenges to external sector sustainability, staff assesses the external position to be
moderately weaker than fundamentals and desirable policies, although the CA and REER EBA models
do not provide clear evidence of misalignment (Annex II).
Exchange
ExchangeRate
Rateand
andGross InternationalReserves
Gross International Reserves
5.0 14.0
12.0
4.0
10.0
keacha/US$
US$ Billion
3.0 8.0
2.0 6.0
4.0
1.0
2.0
0.0 0.0
International Reserves (US$ billion) Exchange Rate (RHS)
Source: Zambian authorities.
OUTLOOK AND RISKS

The medium-term outlook is clouded by substantial debt vulnerabilities. The drought and subdued
mining sector activity are negatively impacting growth in 2019. With financing constrained and debt
service increasing, a forced fiscal adjustment is under way.
13. Growth is expected to slow markedly in 2019 and remain subdued going forward
absent a large up-front fiscal adjustment. Growth in 2019 is expected to drop to 2.0 percent as
agriculture and electricity production continues to suffer from weather-related shocks, domestic
demand remains weak, and mining activity declines somewhat due to lower international copper
prices and in response to changes in the mining tax regime and a planned shift from VAT to a
nonrefundable sales tax (see discussion of mining sector issues, Annex V). While a rebound in
agriculture and a moderate recovery in mining activity is projected for 2020, growth is projected to
decline next year and over the medium term as financing constraints force continued disorderly cuts
in public expenditures. Liquidity constraints and depreciation pressures would lead to a contraction
of both manufacturing and import-dependent services, notably wholesale and retail trade (which
account for 20 percent of GDP), pushing growth down to 1.5 percent by 2023. Absent an effective
policy adjustment strategy, inflation would remain above the BoZ’s upper band in 2019 and 2020
due to the pass-through of exchange rate depreciation in addition to the impacts of the drought.
14. External imbalances are projected to widen, adding to pressure on reserves. The current
account deficit is expected to widen in 2019 on lower copper exports (with lower prices and
production) and the higher imports and interest payments associated with public investment. FDI

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and other financial account inflows are expected to remain subdued. International reserves under the
baseline are projected to decline to 1.6 months of imports by end-2019 and to around 1 month of
imports by 2021, leaving little buffer to cushion external shocks or for redemption of the 2022
Eurobond. Additional risks are posed by foreign holdings of local-currency debt (currently at about
$0.7 billion, or half of FX reserves).
15. Risks to the outlook are tilted to the downside (Annex 3). The impact on rural
households in regions impacted by the drought could be more severe than anticipated, presenting
challenges for an effective policy response. Low water levels could further restrict electricity
generation and negatively impact growth prospects, while drought-related price shocks could further
pressure inflation. Delayed policy adjustment could exacerbate the erosion of consumer and investor
confidence and result in large capital outflows, exchange rate depreciation and further tightening of
domestic financial conditions. A weaker kwacha would increase the debt service burden, further
crowding out priority social spending. Tightened global financing conditions would further
complicate rollover of the 2022 Eurobond. Escalating trade tensions and a slowdown in growth in
China could adversely impact copper prices, while the modest recovery anticipated in mining activity
in 2020 after a decline in 2019 is subject to uncertainty.
Authorities’ Views
The authorities broadly agreed with staff’s near-term growth and inflation outlook, notably the
impact of the drought on 2019 outcomes. Over the longer term they expected a larger growth pay-
off from recent public investments that they consider have significantly increased the country’s
growth potential. They also emphasized the large investment needs to close the infrastructure gap,
especially in the rural areas where fast population growth has led to increasing demand for social,
health, education, and transportation infrastructure. They noted that the government will put in place
measures to offset the impact of the drought by tapping the strategic maize reserve stocks and
providing support to farmers. The decision to begin load shedding was a proactive response to the
drought.
POLICY DISCUSSIONS
Discussions focused on reducing debt-related vulnerabilities and preserving macroeconomic stability
while implementing structural reforms to achieve higher and more inclusive growth.
A. Reducing Debt-Related Vulnerabilities
Under current policies, public debt is on an unsustainable path (see accompanying

DSA). Total public debt is projected to increase from 78 percent of GDP in 2018 to 91½ percent of
GDP in 2019 as the large stock of undisbursed project loans (roughly 40 percent of GDP) continues
to disburse. The debt service burden is also expected to rise above 30 percent of government
revenues in 2019. While the DSA baseline is characterized by large and protracted breaches of both
solvency and liquidity indicators, the authorities have committed to remain current on their debt

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obligations and there are no arrears on either external or domestic debt.6 The risk of debt distress
has increased substantially since the last DSA (October 2017) and is currently assessed to be at a very
high level.
Under an alternate scenario, a large upfront and sustained fiscal adjustment can begin
reducing debt-related vulnerabilities and build credibility (Text Table 2). Orderly adjustment
anchored on frontloaded revenue mobilization, a moratorium on new external nonconcessional
borrowing and guarantees, and scaled-back capital spending would put debt on a downward
trajectory to about 60 percent of GDP by end-2029, enabling the government to meet its obligations
in a timely manner while also allowing adequate resources to be allocated to priority social spending
and arrears repayment. While the adjustment would have a drag on growth in the near-term, fiscal
multipliers are estimated to be low based on the limited impact on growth of the recent sharp
increases in government spending. Halting accumulation of expenditure arrears should improve
domestic liquidity,
Text Table 2. Zambia: Selected Economic Indicators, 2016–23
and with a buildup of
credibility financing 2016 2017 2018 Baseline Adjustment
conditions should Prel.

2019
est.
2020 2021 2022 2023 2019 2020 2021 2022 2023
ease. Growth would Real GDP growth (%)

Inflation (y-o-y, %, end-period)
3.8
7.5
3.5
6.1
3.7
7.9
2.0
12.0
1.7
8.0
1.7
8.0
1.6
8.0
1.5
8.0
1.6
9.5
1.9
7.5
2.1
7.0
2.4
7.0
2.8
7.0
pick up starting in Overall balance (cash basis, % of GDP)

1
-6.1 -7.7 -8.3 -4.8 -5.1 -3.4 -3.1 -2.9 -4.3 -4.0 -3.4 -3.0 -2.7
Overall balance (committment) -9.0 -7.0 -10.7 -9.0 -5.6 -4.0 -3.1 -2.9 -6.3 -3.4 -2.9 -2.5 -2.3
2020. Strong and
External current account balance (% of GDP) -3.3 -1.7 -2.6 -3.6 -3.4 -2.9 -2.6 -2.3 -3.7 -3.2 -2.4 -2.0 -1.8
sustained Gross international reserves
US$ billions 2.4 2.1 1.6 1.3 1.0 0.8 0.5 0.5 1.6 1.8 2.0 2.1 2.3
implementation of Months of prospective imports 3.3 2.4 1.9 1.6 1.3 0.9 0.6 0.6 2.0 2.1 2.4 2.4 2.5
fiscal adjustment
2
Public debt 60.7 65.5 78.1 91.6 95.5 98.0 97.6 96.7 84.6 85.0 84.4 81.6 78.4
2
External 36.6 38.2 48.1 59.9 65.6 69.5 70.8 71.5 52.2 52.7 52.3 50.5 49.1
would also boost Copper price (US$/tonne) 4,868 6,170 6,530 6,058 5,991 6,045 6,090 6,123 6,058 5,991 6,045 6,090 6,123
Oil price (US$/barrel) 43 53 68 66 64 61 59 58 66 64 61 59 58
market confidence Sources: Zambian authorities; and IMF staff estimates and projections.
and capital inflows,

1
Adjusted for the accumulation/clearance of VAT refund claims and arrears relating to FRA, FISP, subsidies, public investment projects, and pensions.
Sources: Zambian authorities, IMF staff estimates and projections.

2
Includes public and publicly guaranteed external debt.
leading to a buildup
1
Adjusted for the accumulation/clearance of VAT refund claims and arrears relating to FRA,
of reserves to about
FISP, subsidies, public investment projects, and pensions.
2½ months of 2
imports by 2023. 7
Even in this adjustment scenario, downside risks would remain very high and additional efforts could
be needed.
The 2019 budget envisions the first step in such an adjustment, but binding financing
constraints are forcing a sharper disorderly adjustment (Text Table 3). The 2019 budget aimed
to reduce the deficit to 6½ percent of GDP (commitment basis) by increasing revenues and cutting
current and capital expenditures. While revenue overperformance continued during the first quarter,
6
The Zambian authorities are in the process of clearing some de minimis arrears recently reported to the Paris Club
by Belgium. The authorities’ were confirming de minimis sovereign arrears reported by France. There is an ongoing
internal reconciliation exercise to prevent such arrears from reoccurring. In addition, some pre-HIPC arrears to Iraq
still exist but an agreement in principle has been reached and is currently pending finalization.
7
This assumes no additional IFI support, which could be potentially triggered by a credible consolidation plan and
help replenish reserves to a more adequate level.

ZAMBIA
higher interest costs coupled with negative net domestic financing more than offset it. To bring cash
spending closer in line with available financing, expenditure is being scaled back, including on social
programs and transfers to local governments. Arrears to suppliers are rising, with delays also seen in
remitting some public employees’ loan payment and pension contributions.8 Financing constraints
are expected to hold the cash deficit to 4¾ percent of GDP, but with weak expenditure controls,
arrears will continue accumulating, and the deficit on a commitment basis would reach close to 9
percent of GDP.
Text Table 3. Zambia: Summary of Budgetary Central

Government Operations, 2018–19
(in percent of GDP)
2018 2019
Est. Budget IMF
Revenue 19.1 19.3 19.4

Tax 15.8 15.5 15.7
Other revenue, including mineral royalties 3.1 3.1 3.5
Grants 0.2 0.6 0.2
Expenditure 27.4 25.7 24.2

Compensation of employees 7.8 8.4 7.7
Use of goods and services 2.8 2.2 1.6
Interest 4.6 4.7 4.9
Other current spending 3.5 3.6 2.6
Net acquisition of nonfinancial assets 8.6 6.8 7.3
Of which: externally financed 6.6 5.6 6.8
Net lending/borrowing (overall balance, cash basis) -8.3 -6.5 -4.8
Arrears and VAT refund backlog (- payments) 2.5 0.0 4.3
Net lending/borrowing (overall balance, commitment basis) -10.7 -6.5 -9.0
Financing (Identified) 8.3 3.9 4.8

Domestic 3.3 1.2 0.9
Foreign 4.9 2.7 3.9
Financing gap 0.0 2.6 0.0
Sources: Zambian authorities and staff estimates.

Sources: Zambia authorities and staff estimates.
The 2019 budget announced the replacement of the VAT with a sales tax in line with
the authorities’ goal of increasing revenues. While VAT receipts have been strong in recent years,
the authorities feel the level of refunds has held back its performance and have had difficulty staying
current on VAT refunds.9 A dual-rate sales tax has been proposed (9 percent on domestic goods and
16 percent on imports in line with the current VAT rate). It is envisaged as a hybrid between a VAT
and sales tax, levied at every stage of production, with exemptions for production inputs (e.g. capital
goods) and no scope to claim refunds. The authorities estimate significant windfalls of up to
2 percent of GDP annually from introducing the sales tax. While initially proposed to come into effect
8
In April, the outstanding amount due to NAPSA totaled 1.1 billion Kwacha (450 million in delayed contributions and
650 million in penalties).
9
The stock of verified VAT claims to be refunded has grown recently and stood at 4 billion Kwachas (1½ percent of
GDP) at end-2018. In addition, there is a large stock of unverified claims which the authorities are in the process of
auditing with the help of an international consulting firm. Once the stock of outstanding VAT refund claims is verified,
the Zambian Revenue Authority expects they would be at least partially offset by overdue tax obligations and the
remainder cleared within a year.

ZAMBIA
on April 1, the introduction has been delayed to allow for consultations with taxpayer groups on key
provisions. Staff noted that VAT has performed increasingly well in recent years and urged the
authorities to carefully consider the pros and cons of moving away from VAT to a sales tax, including
creation of distortions due to cascading, complexity, and the scope for discretion in application of
the tax through granting of exemptions and preferences. Staff also urged that, in the event the
transition was made, the granting of exemptions and preferences be contained or estimated yields
could be substantially reduced.
Staff proposed a more determined upfront fiscal consolidation that would be large
enough to create the necessary space to continue to service debt and cover wages and priority
social expenditure. This would mean a fiscal deficit on a commitment basis of about 6.3 percent of
GDP in 2019 from 10.7 percent of GDP in 2018. Fiscal consolidation should continue in 2020 to bring
the deficit to 3.4 percent of GDP. Achieving such a
reduction in the deficit would hinge critically on
Text Table 4. Zambia: Composition of
the authorities’ ability to rein back capital
Recommended Fiscal
Text Table 5. Zambia Composition Adjustment
of Fiscal Adjustment
spending to recent levels of below 5 percent of (Percent of GDP)

(Percent of GDP)
GDP while improving the efficiency of spending to
2019
limit the negative impact on growth. Key elements 2018 Adjustment Savings
Scenario
would include:
Contribution of revenue
Total domestic revenue 18.9 19.5 0.6
• Ending uncertainty about the tax regime Grants 0.2 0.2 0.0
and raising tax revenues to 16 percent of GDP in Contribution of expenditures

Current spending 18.8 19.0 -0.2
2020 by broadening the tax base, reducing tax Capital spending 8.6 5.1 3.5
o/w domestically financed 2.0 1.0 1.0
expenditures and exemptions, strengthening externally financed 6.6 4.1 2.5
compliance, simplifying the tax system, and Clearance of arrears

enhancing tax audit capacity. Domestic payment arrears 1.7 1.7 0.0
VAT refunds backlog 0.8 0.3 0.5
• Introducing a moratorium on new non- Total 4.4
concessional external borrowing and guarantees. Sources: Zambian authorities and IMF staff estimates.
• Significantly lowering public investment spending, carefully prioritizing ongoing projects, and
ensuring only high-return projects are implemented.
• Ensuring adequate space for priority social spending, including on goods and services.
• Halting the accumulation of domestic arrears and gradually clearing the existing stock.
• Restricting new recruitments to essential personnel (health, education and police) and
continuing efforts to identify ghost workers.
• Updating the Medium-Term Expenditure Framework (MTEF) to clearly align with a strategy to
reduce fiscal imbalances.

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Following a Cabinet meeting in May, the authorities announced a series of measures to

contain and better control spending. These included indefinitely postponing contraction of new
non-concessional loans; cancelling some committed but undisbursed loans; and increasing control
and management of disbursements on foreign-financed loans.
The authorities agreed on the importance of a large front-loaded fiscal adjustment to bring debt
back to a more sustainable path. They acknowledged the need for timely action to control debt
accumulation and stop arrears buildup, emphasizing the importance of Cabinet-level decisions in this
regard. The authorities recently announced the halting of disbursement of newly-signed (2018) loan
agreements. Separately, they noted there could be challenges including on the legal front to pausing
ongoing project execution and related disbursements, which would be done in accordance with
contract provisions. They highlighted the importance of effective coordination, noting the close
communication across ministries and with key external lenders. They emphasized the challenges
posed by the large VAT refunds to the mining sector and anticipated that revenue generation will be
helped by the introduction of the sales tax. The authorities viewed the new tax as simpler to
administer while avoiding the issue of refunds, and noted that similar systems were in place in
several other countries.
Text Table 5. Zambia: Fiscal Operations of the Budgetary Central Government 2016–24)
(Percent of GDP)
2016 2017 2018 2019 Baseline Adjustment

Prel. 2019 2020 2021 2022 2023 2024
Budget Budget 2019 2020 2021 2022 2023 2024
est.
Revenue 18.2 17.5 18.6 19.1 19.3 19.4 19.7 19.8 19.8 19.7 19.7 19.7 20.0 20.2 20.6 20.7 20.7
Of which: One-off receipts 0.0 0.1 0.0 1.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.0
VAT refunds (+ accumulation) -0.5 -0.6 0.0 0.8 0.0 0.4 0.0 0.0 0.0 0.0 0.0 0.3 0.0 0.0 0.0 0.0 0.0
Adjusted revenues 18.7 18.1 18.6 18.3 19.3 19.0 19.7 19.8 19.8 19.7 19.7 19.4 20.0 20.2 20.6 20.7 20.7
Expenditure 26.1 27.7 17.9 30.2 24.4 22.7 24.2 22.9 22.1 22.4 22.2 22.6 22.9 23.1 22.9 23.5 23.3
Current 22.3 20.8 18.9 20.7 17.6 15.7 16.2 16.3 16.3 16.2 16.1 17.8 18.3 18.6 18.9 18.8 18.5
Of which: Arrears (+ accumulation) 1.8 0.9 0.0 1.8 -1.3 -1.2 -0.2 -0.1 -0.2 -0.2 -0.2 -1.2 -0.7 -0.3 0.0 0.0 0.0
Capital 3.8 6.8 5.1 9.6 6.8 7.0 8.0 6.6 5.8 6.1 6.1 4.7 4.6 4.5 4.1 4.7 4.9
Of which: Arrears (+ accumulation) 0.0 1.3 0.0 1.0 0.0 -0.3 -0.3 -0.3 -0.7 0.0 0.0 -0.3 -0.3 -0.3 -0.7 0.0 0.0
1
Overall balance, (committment) -7.3 -9.6 -5.6 -11.9 -6.5 -9.0 -5.6 -4.0 -3.1 -2.9 -2.6 -6.3 -3.4 -2.9 -2.5 -2.3 -2.2
1
Primary balance (committment) -5.5 -3.0 -1.7 -6.1 -1.7 -4.1 -0.4 1.3 2.4 2.9 3.2 -2.0 1.3 1.7 1.9 2.1 1.8
Deficit (cash basis) -6.1 -7.7 -6.1 -8.3 -6.5 -4.8 -5.1 -3.4 -3.1 -2.9 -2.6 -4.3 -4.0 -3.4 -3.0 -2.7 -2.6
Sources: Zambian authorities, IMF
Primary balance (cash basis) -2.7 -3.7 -2.2 -3.6 -1.7 0.2 0.1 1.9 2.4 2.9 3.2 0.0 0.7 1.2 1.4 1.6 1.4
staff estimates and projections.

1
Adjusted for the accumulation/clearance of VAT refund claims and arrears relating to FRA, FISP, subsidies, public
investment projects, and pensions.
2
B. Strengthening PFM to Anchor Fiscal Sustainability
The enactment of the Public Finance Management Act in April 2018 is an important
step toward strengthening management of public resources. If effectively implemented, this

ZAMBIA
would enhance commitment control and improve predictability of budget allocations, reducing the
incidence of domestic arrears.10 Staff recommended:
• moving to early quarterly budget releases so ministries and departments do not issue
purchase orders outside of the Integrated Financial Management Information System (IFMIS)
and introducing complementary IFMIS functionality to restrict line ministries’ total monthly
payments to a cash limit; and
• for expenses not subject to commitment controls in IFMIS, such as wages and utilities,
effective reconciliation of payroll and HR system data and introducing pre-paid meters and
vouchers for utility and rent payments.
The efficiency of public investment also needs to be improved. The 2017 PIMA estimated
an efficiency loss of 45 percent for Zambia’s public investment relative to an average of 36 percent
for SSA countries. Key areas for improvement included vetting of projects and more systematically
conducting appraisals of domestically-financed projects before inclusion in the budget, and
procurement processes that undermine efficiency and create opportunities for corruption. In 2018
the Government embarked on development of the Public Investment Management System to
establish an institutional framework for coordinating and undertaking ex ante appraisal of new public
investment projects. It is expected to begin operating in 2020. Staff stressed that enacting the
Planning and Budgeting Bill will be important to enhance the project selection and appraisal process,
while revising the Loans and Guarantees Act will provide the necessary framework for medium-term
debt management. Staff also recommended that a small unit be established in the Ministry of
Finance to monitor and mitigate risks related to implementation of the 5-10 largest capital
expenditure projects.
The authorities acknowledged the need to rationalize public investment expenditure. They noted
that some of the accompanying legislation to the PFM Act requires constitutional changes and thus
will take time to enact. They highlighted the role that the Public Investment Management System will
play in ex ante appraisal of public investment projects once it is operational. They also pointed to the
recent establishment of the Public Investment Board (PIB) as the overall review and decision-making
body on public investment management for new capital projects. The authorities committed to
enforcing strict adherence to PFM rules established under the PFM Act of 2018 and announced steps
to this effect following the Cabinet meeting in late May. They will aim to release cash warrants in a
timely manner to limit the risk of arrears.
C. Strengthened Debt Management and Market Development
Further improvements in debt management would help contain debt vulnerabilities.

Building on an initial mission in May, a pipeline of debt management technical assistance, informed
10
Past Fund TA identified predictability and control in budget execution as areas of weakness (2017 PEFA report),
while Zambia fared well on policy-based fiscal strategy and budgeting.

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by a reform plan currently in development, will be delivered jointly by IMF, World Bank, and
Macroeconomic and Financial Management Institute of Eastern and Southern Africa in the coming
years. The recently-initiated quarterly debt stock update is a welcome step and can be further
enhanced by the launch of a quarterly Debt Statistics Bulletin (planned for 2019). Beyond this, key
priorities include:
• Strengthening management over the large stock of contracted but undisbursed debt, to
ensure clear prioritization of projects and agreement on the pace of project execution.
• Close monitoring and management of portfolio risks against rapidly rising external debt
payments (most in foreign currency) and the nearing Eurobond maturities.
• Improving monthly cash flow forecasts to facilitate more flexibility in domestic debt auctions
to better adapt to market financing conditions.
• Better inter-agency coordination to ensure timely budget allocation and payment processing
to avoid late payments.
• SOE debt (guaranteed and nonguaranteed) should be managed more systematically to allow
timely monitoring of fiscal risks.
The BoZ is also taking steps to develop domestic securities markets, including through
the planned launch later this year of a Primary Dealership System (PDS). Under the PDS, primary
dealers would be obliged to take up, market, and distribute benchmark bonds to ensure reliable
demand for securities and provide market liquidity. The BoZ has been buying government bonds in
the secondary market to build a backstop facility. However, the current environment, particularly
recent continuous undersubscription of government bonds, presents complications for launching a
well-functioning PDS. To encourage market transactions, the handling fee charged on government
securities has been lowered to 1 percent from 2 percent.
The authorities concurred on the value of public debt transparency and the importance of a prudent
management of the contracted debt portfolio. Regarding existing debt, they had engaged in
discussions with a bilateral creditor on a voluntary debt reprofiling and the possibility of servicing
debt in the lenders’ national currency. They also agreed with staff on the necessity of closely
monitoring debt payment schedules and associated portfolio risks to ensure timely payments
through effective coordination among different government functions.
D. Enhancing Monetary Policy and Operations
The BoZ has continued to strengthen its monetary policy framework (MPF). The
overnight interbank rate has been maintained within the narrowed policy rate corridor, and the BoZ
increased the use of open market operations (OMOs) and announced clear inflation targets that were
largely observed. However, the increase in yields on government securities has weakened monetary
transmission as elevated bank lending rates reflected yields on government securities. In the

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Interbank Foreign Exchange market, while volume has remained modest, there is no evidence of FX
shortages or existence of a parallel FX market. The BoZ is also developing, with Fund TA, a
forecasting and policy analysis system (FPAS) to be used as a key input in monetary policy decision
making.
Consistent with the BoZ’s forward-looking MPF, some further tightening of the
monetary policy stance would address rising inflationary pressures and support reserve
accumulation. In raising the policy rate by 50 bps to 10.25 percent in May, the MPC emphasized its
intention of countering inflationary pressures and supporting macroeconomic stability. With
inflationary pressures expected to persist, and inflation marginally above the upper bound of the
target range, the policy stance should continue to be adjusted to keep forward looking real rates
positive and support reserve accumulation. At 1.7 months of imports, the level of reserves is modest
compared to public debt service needs, and the BoZ has entered the market in recent months to
purchase reserves as market conditions permit. Reserves should be opportunistically replenished
over the medium term, with market intervention otherwise limited to smoothing excessive volatility.
Staff advised that monetary policy effectiveness would be higher if accompanied by a large and
upfront fiscal consolidation.
Authorities' Views
The authorities agreed that the current situation was giving rise to inflationary pressures. The BoZ
expressed its intention to use monetary policy instruments at its disposal to ensure that inflation is
kept within the its target band but stressed that the efficacy of the monetary policy response would
depend on fiscal consolidation. The authorities also indicated their commitment to a flexible
exchange rate policy and the importance of bolstering reserves and believe that reserves will be
higher than projected by staff. The BoZ also expressed appreciation for Fund support on FPAS.
E. Securing Financial Stability
The BoZ has made good progress in upgrading the institutional, regulatory,
supervision and crisis management framework in line with the 2017 FSAP recommendations
(Annex I). The revised 2017 Banking and Financial Service Act (BFSA) and the amended draft BoZ
Act, currently with the Ministry of Finance, appropriately address the BoZ’s operational
independence, Basel II/III standards and licensing. In completing work on upgrading the BoZ Act to
grant the central bank operational independence, staff advised to avoid increasing the BoZ’s
financing ceiling to the government. In June 2017, the BoZ revised and strengthened the legal
framework for Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) and
terrorist financing offense. The BoZ is also examining options to implement a deposit insurance
scheme, with Fund TA.
The strong nexus between Zambia’s financial sector and the sovereign creates
potential channels of stress. While bank capitalization levels are strong, deepening macrofinancial
linkages likely will contribute to keeping NPLs above Zambia’s 10 percent prudential benchmark and

ZAMBIA
are impacting banks’ liquidity preferences (Annex IV). High levels of dollarization11 may limit the
effectiveness of BoZ liquidity support in case of a crisis.
Significant progress has been achieved in improving BoZ supervision, and additional
steps would support a robust, rules-based progressive enforcement program, including early
intervention. Staff advised to:
• complete the staffing and training of the supervision department and enhance the crisis
preparedness and management framework; and
• limit on-site activities to high priority risks and functions, and prioritize onsite inspections of
individual banks based on risk assessment.
The authorities agreed with staff’s assessment of the financial sector and welcomed the intersectoral
perspective provided by the discussion of macrofinancial linkages and vulnerabilities. The BoZ also
agreed with staff’s recommendation on upgrading the BoZ Act, noting the ongoing work to put in
place implementing regulations for the new BFSA. The authorities also agreed on the need to
improve supervisory capacity by filling vacant positions and prioritizing capacity building, and they
noted the importance of prioritizing inspection activities.
F. Achieving Higher and More Inclusive Growth
Zambia is endowed with abundant natural resources, but the poverty rates remain high
particularly in rural areas that remain dependent on rain-fed agriculture and with large
infrastructure gaps. Zambia’s water resources, at 6,000 cubic meters per inhabitant, are second to
Angola in southern Africa. Just 14 percent of arable land is under cultivation despite the high
incidence of agriculture as an economic activity.12 Agriculture remains labor-intensive and highly
vulnerable to climatic shocks. The electricity access rate is 31 percent.13 Transport logistics and
communication services are particular constraints in rural areas, where 77 percent of the population
live in poverty. The informal sector dominates employment.
Building resiliency in the agriculture sector would support inclusive growth while also
promoting productivity. Proactive strategies to anticipate and respond to adverse climate shocks
and promote well-targeted support programs would bolster resilience in the agricultural sector.
Implementation of the Farmer Input Support Programme (FISP) should be improved by targeting
primarily poor and small-scale farms. Establishing a more stable and predictible regulation of the
maize market would also benefit the poorest.
11
Commercial banks’ foreign currency liabilities were roughly 47 percent of total liabilities at end-2018.
12
FAO, 2014
13
Power Africa, 2018

ZAMBIA
Addressing constraints in the electricity sector—both generation and

distribution––would boost the business environment and lower contingent fiscal liabilities at
ZESCO. Staff advised completing the cost of service study and advancing tariff reforms. Staff
encouraged appropriate protection for vulnerable groups given the high cost and poor targeting of
existing electricity subsidies (richest decile of households receive 64 percent of electricity subsidies
while those in the poorest half receive only 1.5 percent).14 Looking forward, the significant increase in
electricity generation capacity expected by end-2020 (roughly 25 percent of current capacity) as the
Kafue Gorge Lower hydroelectric plant is expected to come on stream could help improve the ability
to respond to shocks to generation capacity.
The Poor in Zambia Employment Population by Types

(millions) (Percentages)
Source: World Bank 2018. Source: CSO 2018.
Steady focus on the business climate is

Components of Ease of Doing Business
also needed. While Zambia compares favorably with
(Distance to the Frontier: 0-100; 100 is best)
SSA average on several dimensions of the 2019
Doing Business Indicators, economic growth has
slowed and private investment has remained
subdued in the current challenging environment
(Annex II). Active engagement with mining
companies should aim to resolve differences that
have undermined confidence.
Governance and institutional quality, as

Source: Doing Business Indicators, 2019.
measured by Worldwide Governance Indicators
(WGI),15 are close to the average of the SSA
14
See Zambia, 2017 Article IV.
15
WGIs are third-party indicators which summarize views of many enterprises, citizens and expert survey respondents
on the quality of governance in a country. The data are gathered from survey institutes, think tanks,
non-governmental organizations, international organizations, and private sector firms. The index ranges between -2.5

ZAMBIA
region but have deteriorated recently (Annex V). Zambia’s Financial Intelligence Center (FIC), the
government agency that collects reports on suspicious activities, publishes annual reports of cases
related to tax evasion, corruption and public procurement. These have increased in 2017–2018. In
2018, several donors froze aid funds for the government social cash transfer program after audit
reports revealed grant misappropriation. The authorities acknowledge the rise in tax evasion and
procurement-related cases and have launched reforms aimed at raising accountability and
transparency in the allocation and use of public finances. The recently-approved Public Financial
Management Act should provide a strong basis to improve fiscal transparency by setting clear
guidelines for procurement procedures.
Corruption Perception Index1 Number of Suspicious Reports Received by FIC

40
35
30
25
20
15
10
5
0
2012 2013 2014 2015 2016 2017 2018
Source: Transparency International.
Source: Transparency International. Source: Various FIC Trend reports

1
Corruption Perception Index is a third-party indicator published annually by Transparency International. It ranges between 0
(highest level of perceived corruption) to 100 (lowest level). It is a combination of opinion surveys and expert assessments of
corruption, collected by twelve institutions. Confidence interval for the 2018 score was between 32 and 38, with standard
error of 1.93.
The authorities agreed on the necessity to boost electricity generation capacity, increase agricultural
productivity and enhance the preparedness to climate-related shocks. They highlighted solar energy
projects initiated as part of efforts to diversify from hydroelectric power. They planned to complete
the cost of service study but saw risks to increasing electricity tariffs in the current economic
environment. In agriculture, they noted that the Zambia Integrated Agriculture Management
Information System (ZIAMIS) was developed to support agri-businesses, farmer expansions and
extension services for agriculture-related public programs.
G. Capacity Building and Statistics
The IMF’s CD strategy for Zambia is targeted at supporting the key policy priority of
fiscal consolidation while reducing vulnerabilities and preserving macroeconomic stability
(Annex VII). The Fund has provided CD on strengthening budget preparation and execution as well
as enhancing the medium-term macro-fiscal framework. A joint IMF/WB debt management reform
to 2.5, with higher values representing more favorable governance. Note that given the confidence interval,
uncertainties exist around Zambia’s point estimate. The WGI scores are normalized each year to mean zero and hence
measure relative performance.

ZAMBIA
plan TA mission took place in May and will be followed by a Medium-term Debt Management
Strategy TA mission tentatively scheduled for July. Fund CD also targets building BoZ capacity in
bank supervision, systemic risk analysis and financial crisis management, drawing on the 2017 FSAP,
as well as capacity building on national accounts and price statistics.
Data provision is broadly adequate for surveillance, despite some shortcomings.

Supported by an active CD program, work has begun on rebasing the current 2010-based GDP
numbers, although the process is likely to be delayed beyond its original end-2019 timeframe. Staff
encourages further progress on strengthening data collection and estimation of key national account
statistics and improving the reconciliation of data on the fiscal outturn between fiscal reports and
government accounts in monetary statistics.
STAFF APPRAISAL
Zambia is facing a difficult macroeconomic environment. The drought in the southern
and western parts of the country—impacting both the agricultural sector and electricity
production—has added to the growth slowdown. While the government’s development strategy has
targeted a significant scaling-up in infrastructure investment, the growth benefits have yet to
materialize, resulting in large fiscal deficits financed through non-concessional borrowing. With
depreciation of the kwacha and the end of grace periods on several loans, increasing debt service
payments are compromising the government’s ability to deliver on its priorities and support the
most vulnerable.
Fiscal consolidations announced in the 2017 and 2018 budgets did not materialize, in
large part as foreign-financed projects were executed more rapidly than anticipated. The very
large stock of contracted but undisbursed debt (equivalent to a further 40 percent of 2018 GDP),
highlights the need for strengthened control and prioritization of public investment projects, while
weak control of budget execution has also undermined the authorities’ efforts to contain spending,
contributing to the buildup of domestic arrears.
On current policies, public debt is on an unsustainable path and financing constraints

are forcing the inevitable fiscal adjustment to occur in a disorderly manner. The risk of debt
distress has increased substantially, but the authorities remain current on their debt service
obligations and reiterated their commitment to remain so. The BOZ has also sought to build up
reserves as market conditions have permitted. But with the availability of domestic financing
tightening, the government is being forced into cash budgeting seriously impacting the ability to
deliver public services.
There is a narrow window for tackling fiscal challenges in an orderly and planned
manner. A large front-loaded and sustained fiscal adjustment is urgently needed to reduce debt-
related vulnerabilities. With adjustment already occurring as financing constraints bite, the drag on
growth and impact on provision of priority social spending can be contained through a carefully
planned and executed adjustment. Revenue mobilization, including scaling back unnecessary
exemptions and tax expenditures, is essential to create fiscal space. The Cabinet decision in late May
to indefinitely postpone contraction of all new non-concessional loans, cancel some committed but
ZAMBIA
undisbursed loans and increase control and management of disbursements on foreign-financed

loans, and to strictly adhere to PFM rules under the 2018 PFM Act are steps in the right direction.
Strong and sustained actions are critical. Even with a bold adjustment, risks would remain very high.
Building on approval of the Public Finance Management (PFM) Act in April 2018,
stronger procedures are needed to ensure budget execution reflects the authorities’ fiscal
goals. Weaknesses in procurement processes and in project selection, appraisal and implementation
that undermine efficiency and create opportunities for corruption need to be addressed. Improving
public investment efficiency can also help moderate the initial reduction in growth from the fiscal
adjustment. The Planning & Budgeting Act and the Loans and Guarantees Act should be advanced to
promote transparency and fiscal risk management.
Monetary policy has an important role to play in securing stability. The BoZ has
strengthened its forward-looking monetary policy framework and the increase in the policy rate in
May as inflation crept above the BoZ’s inflation band is a welcome step. Given persistent pressure on
the kwacha and a rise in inflationary pressures, some further monetary policy tightening is warranted
to keep real rates positive and support accumulation of reserves which are low compared to public
debt service needs. To be effective, monetary policy actions must be accompanied by a reorientation
of the fiscal stance.
Financial sector supervisory capacity has improved. While financial sector indicators have
remained broadly resilient, macrofinancial pressures from the strong linkages between the financial
system and the sovereign warrant close monitoring. Limiting the buildup of arrears, and avoiding
payments delays on pension and loan contributions, would help to avoid further increases in NPLs
and liquidity pressures in the financial system. Banking supervision and the BOZ’s crisis preparedness
and management frameworks should continue to be strengthened, as recommended by the 2017
FSAP, and resolution of non-performing loans should remain a priority.
There is potential for growth to accelerate over the medium term. Achieving inclusive
growth also will require steady focus on improving the investment climate, promoting productivity
and human capital, and addressing the risks of corruption. Beyond the response to the current
drought, proactive strategies to anticipate climate-related risks and promote well-functioning
support programs in the agricultural sector would support resilience.
Zambia maintains one exchange restriction subject to Fund approval under Article VIII,
Section 2(a) (see Informational Annex). Staff does not recommend approval, as there is no
timetable for its removal.
Staff recommends that the next Article IV consultation be held on the standard
12-month cycle.

ZAMBIA
Figure1.1.Zambia:
Figure Zambia:Recent
RecentDevelopments
Developments
2308 Tunlaw Road NW, DC 20007
Growth has slowed in recent years. Services and industry are the main sources of growth.
Real GDP Growth, 2000–18 Sectoral contributions to GDP growth, 2013-19

(Percent) (Percent)
12
7
10 6
8 5
4
6
3
4 2
2 1
0
0
2000
2002
2005
2008
2010
2011
2013
2016
2001
2003
2004
2006
2007
2009
2012
2014
2015
2017
2018
-1
-2
2013 2014 2015 2016 2017 2018 2019
GDP Growth Average (2000-2010) Proj.
Average (2011-2018) Other services Wholesale and retail
Non-mining industry Mining
Agriculture GDP growth
The 2015/2016 commodity price shock drove a spike in Inflation has crept up in recent months due to kwacha
inflation and a sharp depreciation of the kwacha. depreciation and increases in food and fuel prices.
Consumer Price Index and Exchange Rate Inflation

(January 2013–April2019) (Year-on-year percentage change)
240 14 30
220 12
25
200 10
20
180 8
160 6 15
140 4
10
120 2
5
100 0
May-16
Jan-13
Jun-13
Jan-18
Jun-18
Feb-15
Mar-17
Oct-16
Apr-14
Jul-15
Apr-19
Sep-14
Aug-17
Dec-15
Nov-13
Nov-18
0
Jul-15
Jun-13
Nov-13
Sep-14
Dec-15
Jun-18
Jan-13
Aug-17
Jan-18
Nov-18
Oct-16
May-16
Apr-14
Mar-17
Apr-19
Feb-15
Consumer price index (2009=100) - LHS
Dollar Exchange Rate (ZMW/USD) - RHS

Overall Food Non-Food
Sources: Zambia Central Statistics Office; LME; IMF, World Economic Outlook database; and IMF staff estimates and projections.
Sources: Zambia Central Statistics Office; LME; IMF, World Economic Outlook database; and IMF staff estimates and

ZAMBIA
Figure 2. Zambia: Fiscal Developments

(Percent ofFigure
GDP,2.unless
Zambia: Fiscal Developments
otherwise specified)
(Percent of GDP, unless otherwise specified)
Strong VAT performance has helped maintain revenues The w age bill, rising interest payments (other)and public
despite a slow er economy and w eaker nontax recepits . investment dominate government spending.
8 8 10 10
VAT refund backlog Payment backlog VAT
7 7
8 8
6 6
5 5 6 6
4 4
3 3 4 4
2 2
2 2
1 1
0 0 0 0
2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019
Prel. Proj. Prel. Proj.
VAT Wages and Salaries Capital Spending
Indirect Taxes (Non- VAT) Other Purchase of Goods and Services
Inco me Tax
Subsidies
Other Non-Tax
Mining Revenues (exc. one-off pa yments)
Fiscal imbalances have been driven by spending overruns. The 2018 deficit (cash basis) was mainly financed by external
resources, unlike the 2016-2017 deficits.
30 0 10 10
25 9
-2 8
20 8
-4 7 6
15 6
10 -6 5 4
5 4
-8 3 2
0
-10 2 0
-5 1
-10 -12 0 -2
2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019
Prel. Proj. Prel. Proj.
Revenues Expenditures Domestic Financing External Financing
Deficit - Cash (rhs) Budget target (rhs)
Accumulation of domestic arrears and backlog of VAT refunds Public debt has risen rapidly pushed by external debt and
are significant. depreciation and the accumulation of domestic arrears.
4 4 90 90
80 80
0 0 70 70
60 60
-4 -4 50 50
40 40
-8 -8 30 30
20 20
10 10
-12 -12 0 0
2014 2015 2016 2017 2018 2019
-16 -16 Prel. Proj.
2014 2015 2016 2017 2018 2019 Tota l P ublic Debt Pub lic External Debt
Prel. Proj.
Cash d eficit Arre ars & VAT refunds Commi tment d efi cit Domestic d ebt Stock of d ome stic ar rears
Sources: Zambian authorities and IMF estimates and calculations.
Accumulation of domestic arrears and backlog of VAT

refunds are significant.
ZAMBIA
Figure
Figure 3. Zambia:
3. Zambia: External
External Sector
Sector
(Millions
(Millions of U.S.ofdollars,
U.S. dollars,
unless unless otherwise
otherwise specified)
specified)
Since 2015, the current account has moved into deficit on
low er trade surpluses. Exports w ill moderate w ith low er copper prices.
2,500 14,000 10,000

2,000 12,000
1,500 8,000
1,000 10,000
500
8,000 6,000
0
-500 6,000 4,000
-1,000
-1,500 4,000
2,000
-2,000 2,000
-2,500
2012 2013 2014 2015 2016 2017 2018 2019 0 0
Proj. 2012 2013 2014 2015 2016 2017 2018 2019
Trade Services Non-copper exports Proj.
Income Transfers Copper exports
Current account
Copper prices (US$ per MT, RHS)
Non-oil imports have picked up since 2017 w ith increasing FDI inflow s have declined.
public investment as a main driver.
12,000 3,600 14
3,200 12
10,000 2,800
10
2,400
8,000
2,000 8
6,000 1,600 6
1,200
4
4,000 800
400 2
2,000 0 0
2012 2013 2014 2015 2016 2017 2018 2019
0 Proj.
2012 2013 2014 2015 2016 2017 2018 2019
Proj. FDI net inflows Portfolio investments
Non-oil imports Oil imports
Official flows (net) FDI (% of GDP, RHS)
Other outflows remain sizeable. Official reserves import coverage has declined.
3,500 6
0 0
3,000 5
-1,000 -4
2,500
-2,000 4
-8 2,000
-3,000 3
1,500
-12
-4,000 2
1,000
-5,000 -16 1
500
-6,000 -20 0 0
2012 2013 2014 2015 2016 2017 2018 2019 2012 2013 2014 2015 2016 2017 2018 2019
Proj. Proj.
Assets abroad (U.S.$)
Stock of reserves
Assets abroad (% GDP, RHS) In months of next year's imports (RHS)
Sources: BankBank
Sources: of Zambia andand
of Zambia IMFIMF
staffstaff
forecasts.
forecasts.

ZAMBIA
Figure 4. Zambia: Monetary & Financial Developments

Figure 4. Zambia: Monetary & Financial Developments
Policy Rate and Interbank Rate Average Lending and Deposit Rates
(Percent) (Percent)
30
28
27
24 24
20 21
18
16
15
12 12
Inte rbank Ove rnight Ra te 9 Deposit Rate, Checking
8
Overnig ht Inte rbank Ra te
Poli cy Rate 6
Deposit Rate, Sa vin gs 180 -day+
4 2 Percent cor ridor 3 Len ding Rate
Upper corrido r
0 0
Jan-15
Jan-17
Jan-18
Jan-16
Jan-19
Jul-15
Jul-17
Jul-16
Jul-18
Jan-16
Jan-19
Jan-15
Jan-17
Jan-18
Jul-15
Jul-17
Jul-16
Jul-18
dollar reserves
Government T-Bills and Bonds Yields Exchange Rates
(volume-weighted, percent) (Averaqe, kwacha per USD; 2010=100)
32 Bonds Dollar Exchange Rate
30 14 (ZMW/USD) 200
T-bills NEER Index, RHS
28
26 13 180
REER Index, RHS
24
12 160
22
20
11 140
18
16 10 120
14
12 9 100
10
8 8 80
Jun-16
Jun-17
Jun-18
Apr-16
Apr-17
Apr-18
Apr-19
Aug-16
Dec-17
Dec-18
Dec-15
Dec-16
Aug-17
Aug-18
Dec-15
Dec-16
Dec-18
Dec-17
Commercial Banks' Forex Purchase International Reserves

(14-day average, millions of US$) (billions of US dollars)
60,000 4.2
Spot Purchases
(Others) 3.8 Gross International Reserves
50,000
Spot Purchases Unencumbered reserves
3.4
40,000 (Interbank)
3.0
30,000 2.6
2.2
20,000
1.8
10,000 1.4
0 1.0
Jan-16
Jan-18
Jan-19
Jan-15
Jan-17
Jul-15
Jul-17
Jul-16
Jul-18
Jun-16
Jun-17
Jun-18
Dec-15
Dec-18
Dec-16
Dec-17
Source: Bank of Zambia.

ZAMBIA
Figure
Figure 4. Zambia:
4. Zambia: Monetary
Monetary & Financial
& Financial Developments
Developments (concluded)
(continued)
Reserve Money Broad Money

(monthly average, billions of kwacha) (billions of kwacha)
20 65
Excess Reserves
18 60
55
16 50
14 45 FX Deposits
12 40
35
10 30
8 Statutory Reserves 25 Savings, Time and Other Deposits
6 20
15 Demand Deposits
4
10
2 Currency in Circulation 5
Currency w ith Non-banks
0 0
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Jun-18
Dec-18
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
Jul-17
Jan-18
Jul-18
Jan-19
Outstanding Government Securities Foreign Holdings of Government

(T-bills and bonds, billions of kwacha, face value) Securities
(Face Value, kwacha billions)
60 10
Outstanding Government Securities 9
50 8
Outstanding Bonds Total
7
40
6 T-Bills
30 5
4
20 3
2
10 1
0
0
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
Jul-17
Jan-18
Jul-18
Jan-19
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
Jul-17
Jan-18
Jul-18
Jan-19
Bank Credit to Domestic Economy Bank Credit Growth

(billions of kwacha) (year-on-year percent change)
70 130 Bank Credit (Total)

Credit to the Private Sector
60 Kwacha denominated loans 110
Credit to Central Government
Foreign Currency Loans 90
50
70
40
50
30
30
20
10
10 -10
0 -30
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Jun-18
Dec-18
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Jun-18
Dec-18
Source: Bank of Zambia

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Table 1. Zambia: Selected Economic Indicators, 2016–24
2016 2017 2018 2019 2020 2021 2022 2023 2024 2019 2020 2021 2022 2023 2024
Prel. Projections Adjustment
National account and prices

GDP growth at constant prices 3.8 3.5 3.7 2.0 1.7 1.7 1.6 1.5 1.5 1.6 1.9 2.1 2.4 2.8 3.3
Mining 7.3 3.0 6.3 -2.0 2.0 2.0 3.0 3.0 3.0 -2.0 2.0 3.0 4.0 5.0 5.0
Non mining 3.4 3.6 3.4 2.5 1.7 1.7 1.4 1.3 1.3 2.0 1.9 2.0 2.2 2.6 3.1
GDP deflator 13.6 10.1 9.5 10.0 9.7 8.2 8.3 8.0 7.7 7.9 7.2 6.7 6.5 6.6 6.4
GDP at market prices (billions of kwacha) 216.1 246.3 279.4 313.5 349.8 385.2 423.7 464.4 507.9 306.4 334.6 364.5 397.8 435.9 479.3
GDP at market prices (millions of kwacha) 216,098 246,252 279,441 313,496 349,831 385,196 423,750 464,432 507,929 306,384 334,593 364,466 397,756 435,924 479,266
GDP at market prices (millions of USD) 20,941 25,868 26,720 23,946 23,342 23,415 23,636 23,951 24,401 24,914 25,874 27,137 28,587 30,251 32,119
Consumer prices
Consumer prices (average) 17.9 6.6 7.0 9.9 10.0 8.0 8.0 8.0 8.0 8.7 8.5 7.3 7.0 7.0 7.0
Consumer prices (end of period) 7.5 6.1 7.9 12.0 8.0 8.0 8.0 8.0 8.0 9.5 7.5 7.0 7.0 7.0 7.0
External sector
Terms of trade (deterioration -) -3.0 16.0 -3.8 -6.4 -1.5 0.3 0.1 -0.2 -1.1 -6.5 -2.0 0.5 0.2 -0.1 -0.8
Average exchange rate (kwacha per U.S. dollar) 10.3 9.5 10.5 … … … … … … … … … … … …
(percentage change; depreciation +) 19.5 -7.7 9.9 … … … … … … … … … … … …
End-of-period exchange rate (kwacha per U.S. dollar) 9.9 9.9 11.9 … … … … … … … … … … … …
Real exchange rate (depreciation +) 4.3 -10.8 5.4 … … … … … … … … … … … …
Money and credit

Domestic credit to the private sector -9.4 5.2 16.7 7.5 7.9 7.9 6.2 6.9 7.1 10.1 13.1 13.0 14.4 14.4 12.5
Reserve money (end of period) 12.8 -25.6 -0.6 10.3 13.4 11.0 11.9 11.6 10.5 11.5 14.1 12.6 12.9 13.4 11.2
Broad Money (M3) -5.7 21.4 16.5 11.9 11.0 10.1 11.0 10.7 10.5 11.7 10.3 10.2 10.6 11.0 11.2
Credit to the private sector (percent of GDP) 12.1 11.2 11.5 11.0 10.6 10.4 10.1 9.8 9.6 11.5 12.0 12.4 13.0 13.6 13.9
National accounts
Gross investment 38.2 41.0 43.3 41.1 40.2 37.3 36.6 36.0 35.7 39.8 40.2 40.3 40.5 40.7 41.2
Government 3.8 5.5 8.6 7.3 8.4 6.9 6.5 6.1 6.1 5.1 4.9 4.8 4.8 4.7 4.9
Private 34.4 35.5 34.8 33.8 31.9 30.5 30.2 29.9 29.6 34.8 35.3 35.5 35.8 36.1 36.4
National savings 34.9 39.3 40.7 37.5 36.8 34.4 34.0 33.7 33.7 36.2 37.0 37.8 38.5 39.0 39.7
External current account balance -3.3 -1.7 -2.6 -3.6 -3.4 -2.9 -2.6 -2.3 -2.0 -3.7 -3.2 -2.4 -2.0 -1.8 -1.5
Central government budget

Revenue 18.2 17.5 19.1 19.4 19.7 19.8 19.8 19.7 19.7 19.7 20.0 20.2 20.6 20.7 20.7
Taxes 13.0 14.8 15.8 15.7 15.9 16.0 16.0 15.9 15.9 16.1 16.0 16.3 16.5 16.6 16.6
Grants 0.2 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.2 0.1 0.1 0.1 0.1 0.1
Other revenue 5.0 2.5 3.1 3.5 3.7 3.7 3.7 3.8 3.8 3.5 3.8 3.9 4.0 4.0 4.1
Expenditure 23.9 25.0 27.4 24.2 24.8 23.3 22.9 22.6 22.4 24.1 24.0 23.6 23.6 23.5 23.3
Expense 20.2 19.4 18.8 16.8 16.4 16.4 16.4 16.5 16.3 19.0 19.1 18.8 18.9 18.8 18.5
Net acquisition of nonfinancial assets 3.8 5.5 8.6 7.3 8.4 6.9 6.5 6.1 6.1 5.1 4.9 4.8 4.8 4.7 4.9
Net lending/borrowing (cash basis) -5.7 -7.7 -8.3 -4.8 -5.1 -3.4 -3.1 -2.9 -2.6 -4.3 -4.0 -3.4 -3.0 -2.7 -2.6
Net lending/borrowing (commitment basis) -9.0 -7.0 -10.7 -9.0 -5.6 -4.0 -3.1 -2.9 -2.6 -6.3 -3.4 -2.9 -2.5 -2.3 -2.2
Net acquisition of financial assets -0.6 0.3 -0.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Domestic -0.6 0.3 -0.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Foreign 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Net incurrance of liabilities 5.5 8.1 7.6 4.8 5.1 3.4 3.1 2.9 2.6 4.4 4.0 3.4 3.0 2.7 2.6
Domestic 3.8 5.2 2.7 1.0 0.8 0.8 0.8 0.8 0.7 2.8 2.9 2.5 2.0 1.1 1.0
Foreign 1.7 2.9 4.9 3.9 4.3 2.7 2.3 2.1 1.9 1.6 1.1 0.9 1.1 1.6 1.6
Financing gap -0.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
External sector
Current account balance -3.3 -1.7 -2.6 -3.6 -3.4 -2.9 -2.6 -2.3 -2.0 -3.7 -3.2 -2.4 -2.0 -1.8 -1.5
(including current and capital grants) -3.0 -1.5 -2.4 -3.3 -3.1 -2.7 -2.4 -2.1 -1.8 -3.4 -2.9 -2.2 -1.8 -1.6 -1.4
(excluding grants) -3.3 -1.8 -2.6 -3.6 -3.4 -2.9 -2.6 -2.3 -2.0 -3.7 -3.2 -2.4 -2.0 -1.8 -1.5
Gross International Reserves (months of prospective
imports) 3.3 2.4 1.9 1.6 1.3 0.9 0.6 0.6 0.5 2.0 2.1 2.4 2.4 2.5 2.5
Public debt
Total public debt, gross (end-period) 60.7 65.5 78.1 91.6 95.5 98.0 97.6 96.7 95.1 84.6 85.0 84.4 81.6 78.4 74.8
External 1 36.6 38.2 48.1 59.9 65.6 69.5 70.8 71.5 71.3 52.2 52.7 52.3 50.5 49.1 47.4
2
Domestic 24.1 27.3 30.0 31.7 29.8 28.5 26.8 25.2 23.8 32.3 32.4 32.1 31.1 29.3 27.4

1
Public and publicly guaranteed external debt.
2
Including arrears.

ZAMBIA
Table 2a. Zambia: Fiscal Operations of the Budgetary Central Government, 2016–24
(Millions of kwacha)
2016 2017 2018 2019 2020 2021 2022 2023 2024 2019 2020 2021 2022 2023 2024
Revenue 39,410 43,032 53,449 60,806 68,949 76,284 83,836 91,616 100,259 60,458 66,823 73,758 81,822 90,286 99,415
Revenue excluding grants 38,885 42,566 52,802 60,112 68,493 75,833 83,389 91,175 99,825 59,801 66,390 73,334 81,405 89,875 99,008
Tax 28,028 36,490 44,240 49,228 55,636 61,653 67,592 73,699 80,623 49,222 53,588 59,260 65,636 72,234 79,473
Tax revenues adjusted by the backlog of VAT refunds 29,114 37,911 42,030 48,004 55,636 61,653 67,592 73,699 80,623 48,222 53,588 59,260 65,636 72,234 79,473
Other revenue, including mineral royalties 10,856 6,076 8,563 10,884 12,857 14,179 15,797 17,475 19,202 10,579 12,802 14,073 15,769 17,641 19,535
Of which: Mineral royalties 3,053 2,435 3,937 4,800 5,568 6,154 6,968 7,799 8,519 4,566 5,436 6,049 7,012 8,043 8,883
Grants 525 467 647 694 456 452 447 441 434 657 433 425 417 412 407
Expenditure 51,713 61,500 76,505 75,762 86,763 89,567 97,124 104,907 113,623 73,728 80,236 86,159 93,914 102,243 111,857
Expense 43,555 47,842 52,569 52,756 57,501 63,169 69,677 76,423 82,560 58,215 63,849 68,665 74,986 81,812 88,469
Compensation of employees 18,807 19,995 21,856 23,992 26,691 29,259 31,818 34,207 36,998 24,126 26,177 28,495 30,639 33,612 37,004
Use of goods and services 4,897 5,930 7,944 5,120 5,186 5,489 5,916 6,667 7,236 7,130 7,836 8,335 9,897 11,043 12,150
Interest 7,448 9,826 12,988 15,477 18,200 20,544 23,338 26,792 29,381 13,338 15,919 16,720 17,589 19,020 19,292
Domestic 4,025 5,045 7,414 8,575 9,796 11,213 13,188 15,126 17,514 8,150 8,874 9,583 10,356 11,112 11,581
Foreign 3,423 4,781 5,574 6,902 8,404 9,332 10,150 11,666 11,868 5,188 7,045 7,137 7,233 7,908 7,711
Subsidies 7,672 4,666 3,136 1,876 1,848 2,128 2,119 2,492 2,176 5,511 5,062 5,357 5,750 5,416 5,582
Intergovernmental transfers 4,195 5,506 5,631 4,910 4,535 4,633 5,258 4,918 5,296 6,048 6,593 7,318 8,398 9,749 11,174
Social benefits 537 1,919 1,015 1,381 1,041 1,117 1,228 1,346 1,472 2,062 2,262 2,439 2,712 2,972 3,267
Net acquisition of nonfinancial assets 8,157 13,658 23,936 23,006 29,261 26,397 27,447 28,484 31,063 15,512 16,388 17,494 18,928 20,431 23,388
Of which: domestically-financed 3,357 5,928 5,582 1,773 3,379 3,467 4,862 6,995 7,946 2,956 3,269 3,910 4,864 5,152 6,782
Of which: foreign-financed 4,810 7,730 18,354 21,232 25,882 22,931 22,586 21,488 23,117 12,556 13,119 13,584 14,064 15,279 16,605
Statistical Discrepancy (-overfinancing) -874 -525 0 0 0 0 0 0 0 0 0 0 0 0 0

Net lending/borrowing (overall balance, cash basis) -13,177 -18,993 -23,056 -14,956 -17,814 -13,283 -13,288 -13,291 -13,364 -13,269 -13,413 -12,400 -12,092 -11,957 -12,442
Primary balance (cash basis) -5,728 -9,166 -10,068 521 386 7,262 10,049 13,500 16,017 69 2,506 4,320 5,497 7,063 6,850
Domestic arrears (- payments) 7,287 -243 4,684 12,165 1,725 2,300 0 0 0 5,128 -1,950 -1,950 -1,950 -1,950 -1,950
Backlog of VAT refunds (flow) -1,086 -1,421 2,210 1,225 0 0 0 0 0 1,000 0 0 0 0 0
1
Overall balance, (commitment basis) -19,378 -17,328 -29,949 -28,345 -19,539 -15,583 -13,288 -13,291 -13,364 -19,397 -11,463 -10,451 -10,142 -10,007 -10,492
1
Primary balance (commitment basis) -11,929 -7,502 -16,962 -12,868 -1,339 4,962 10,049 13,500 16,017 -6,059 4,455 6,269 7,447 9,013 8,800
Financing 13,177 18,993 23,056 14,956 17,814 13,283 13,288 13,291 13,364 13,269 13,413 12,400 12,092 11,957 12,442
Net acquisition of financial assets -1,314 839 -1,861 153 0 0 0 0 0 153 0 0 0 0 0
Domestic -1,314 839 -1,861 153 0 0 0 0 0 153 0 0 0 0 0
Currency and deposits -1,437 839 -1,861 153 0 0 0 0 0 153 0 0 0 0 0
Loans 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Foreign 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Net incurrence of liabilities 11,862 19,832 21,194 15,108 17,814 13,283 13,288 13,291 13,364 13,422 13,413 12,400 12,092 11,957 12,442
Domestic 8,216 12,691 7,429 2,998 2,944 2,978 3,424 3,491 3,481 8,669 9,810 9,134 7,890 4,993 4,569
Foreign 3,646 7,141 13,765 12,110 14,870 10,305 9,865 9,800 9,884 4,753 3,603 3,267 4,203 6,964 7,873
Loans 3,646 7,141 13,765 12,110 14,870 10,305 -3,581 9,800 -10,932 4,753 3,603 3,267 -6,233 6,964 -7,048
Budget support, gross 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Project loans, gross 4,966 7,678 17,872 20,983 25,718 22,768 22,425 21,330 22,961 13,007 12,963 13,431 13,914 15,131 16,459
Other, gross 0 1,274 0 0 0 0 0 0 0 0 0 0 0 0 0
Amortization -1,320 -1,811 -4,107 -8,872 -10,848 -12,463 -26,006 -11,529 -33,893 -8,255 -9,360 -10,164 -20,147 -8,166 -23,507
Debt securities 0 0 0 0 0 0 13,446 0 20,816 0 0 0 10,435 0 14,922
Financing gap 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Memorandum items:
Net Domestic Financing 9,653 11,852 9,290 2,845 2,944 2,978 3,424 3,491 3,481 8,517 9,810 9,134 7,890 4,993 4,569
Backlog of VAT refunds (stock) 3,224 1,803 4,013 5,238 9,722 9,722 9,722 9,722 9,722 5,013 5,013 5,013 5,013 5,013 5,013
2
Basic balance (cash basis) -8,377 -11,406 -5,349 5,583 7,613 9,196 8,850 7,756 9,753 -713 -294 1,183 1,972 3,322 4,164
Basic primary balance (cash basis) 3 -2,371 -3,381 -5,133 1,601 3,309 10,277 14,464 20,055 23,963 3,025 5,775 8,230 10,362 12,215 13,632
Primary balance, excluding mining revenue (cash basis) -10,061 -12,669 -16,456 -7,311 -8,688 -2,850 -1,391 693 1,960 -7,350 -5,958 -4,996 -5,059 -4,855 -6,247
1
Primary balance, excluding mining revenue (commitment basis) -16,262 -11,005 -23,350 -20,700 -10,413 -5,150 -1,391 693 1,960 -13,478 -4,008 -3,046 -3,110 -2,906 -4,297
Mining revenue 4,332 3,503 6,388 7,832 9,074 10,111 11,441 12,807 14,057 7,419 8,463 9,315 10,557 11,919 13,097
Stock of domestic debt, gross 51,979 67,300 83,913 99,428 104,304 109,811 113,486 117,253 121,035 99,046 108,259 116,917 123,664 127,593 131,185
Of which: Stock of domestic arrears 17,317 10,901 15,585 27,936 29,869 32,397 32,649 32,924 33,226 22,049 21,452 20,976 19,834 18,770 17,793
Stock of external debt, gross 79,122 94,051 134,358 187,887 229,655 267,794 299,926 331,982 361,938 160,053 176,179 190,544 200,709 213,974 227,109
Total public debt 131,101 161,352 218,271 287,315 333,959 377,605 413,412 449,234 482,973 259,099 284,438 307,460 324,373 341,567 358,294

1
Adjusted for accumulation/clearance of VAT refund claims and arrears relating to FRA, FISP, subsidies, public investment, and pensions.
2
Defined as total revenue minus total expenditure, excluding foreign-financed investment expenditure.
3
Defined as total revenue minus total expenditure, excluding all interest and foreign-financed investment expenditure.

ZAMBIA
Table 2b. Zambia Fiscal Operations of the Budgetary Central Government, 2016-24
(Percent of GDP)
2016 2017 2018 2019 2020 2021 2022 2023 2024 2019 2020 2021 2022 2023 2024
Prel.
Projections Adjustment
Revenue 18.2 17.5 19.1 19.4 19.7 19.8 19.8 19.7 19.7 19.7 20.0 20.2 20.6 20.7 20.7
Revenue excluding grants 18.0 17.3 18.9 19.2 19.6 19.7 19.7 19.6 19.7 19.5 19.8 20.1 20.5 20.6 20.7
Tax 13.0 14.8 15.8 15.7 15.9 16.0 16.0 15.9 15.9 16.1 16.0 16.3 16.5 16.6 16.6
Tax revenues adjusted by the backlog of VAT refunds 13.5 15.4 15.0 15.3 15.9 16.0 16.0 15.9 15.9 15.7 16.0 16.3 16.5 16.6 16.6
Other revenue, including mineral royalties 5.0 2.5 3.1 3.5 3.7 3.7 3.7 3.8 3.8 3.5 3.8 3.9 4.0 4.0 4.1
Of which: Mineral royalties 1.4 1.0 1.4 1.5 1.6 1.6 1.6 1.7 1.7 1.5 1.6 1.7 1.8 1.8 1.9
Grants 0.2 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.2 0.1 0.1 0.1 0.1 0.1
Expenditure 23.9 25.0 27.4 24.2 24.8 23.3 22.9 22.6 22.4 24.1 24.0 23.6 23.6 23.5 23.3
Expense 20.2 19.4 18.8 16.8 16.4 16.4 16.4 16.5 16.3 19.0 19.1 18.8 18.9 18.8 18.5
Compensation of employees 8.7 8.1 7.8 7.7 7.6 7.6 7.5 7.4 7.3 7.9 7.8 7.8 7.7 7.7 7.7
Use of goods and services 2.3 2.4 2.8 1.6 1.5 1.4 1.4 1.4 1.4 2.3 2.3 2.3 2.5 2.5 2.5
Interest 3.4 4.0 4.6 4.9 5.2 5.3 5.5 5.8 5.8 4.4 4.8 4.6 4.4 4.4 4.0
Domestic 1.9 2.0 2.7 2.7 2.8 2.9 3.1 3.3 3.4 2.7 2.7 2.6 2.6 2.5 2.4
Foreign 1.6 1.9 2.0 2.2 2.4 2.4 2.4 2.5 2.3 1.7 2.1 2.0 1.8 1.8 1.6
Subsidies 3.6 1.9 1.1 0.6 0.5 0.6 0.5 0.5 0.4 1.8 1.5 1.5 1.4 1.2 1.2
Intergovernmental transfers 1.9 2.2 2.0 1.6 1.3 1.2 1.2 1.1 1.0 2.0 2.0 2.0 2.1 2.2 2.3
Social benefits 0.2 0.8 0.4 0.4 0.3 0.3 0.3 0.3 0.3 0.7 0.7 0.7 0.7 0.7 0.7
Net acquisition of nonfinancial assets 3.8 5.5 8.6 7.3 8.4 6.9 6.5 6.1 6.1 5.1 4.9 4.8 4.8 4.7 4.9
Of which: domestically-financed 1.6 2.4 2.0 0.6 1.0 0.9 1.1 1.5 1.6 1.0 1.0 1.1 1.2 1.2 1.4
Of which: foreign-financed 2.2 3.1 6.6 6.8 7.4 6.0 5.3 4.6 4.6 4.1 3.9 3.7 3.5 3.5 3.5
1
Statistical Discrepancy (-overfinancing) -0.4 -0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Net lending/borrowing (overall balance, cash basis) -6.1 -7.7 -8.3 -4.8 -5.1 -3.4 -3.1 -2.9 -2.6 -4.3 -4.0 -3.4 -3.0 -2.7 -2.6
Primary balance (cash basis) -2.7 -3.7 -3.6 0.2 0.1 1.9 2.4 2.9 3.2 0.0 0.7 1.2 1.4 1.6 1.4
Domestic arrears (- payments) 3.4 -0.1 1.7 3.9 0.5 0.6 0.0 0.0 0.0 1.7 -0.6 -0.5 -0.5 -0.4 -0.4
Backlog of VAT refunds (flow) -0.5 -0.6 0.8 0.4 0.0 0.0 0.0 0.0 0.0 0.3 0.0 0.0 0.0 0.0 0.0
1
Overall balance, (commitment basis) -9.0 -7.0 -10.7 -9.0 -5.6 -4.0 -3.1 -2.9 -2.6 -6.3 -3.4 -2.9 -2.5 -2.3 -2.2
1
Primary balance (commitment basis) -5.5 -3.0 -6.1 -4.1 -0.4 1.3 2.4 2.9 3.2 -2.0 1.3 1.7 1.9 2.1 1.8
Financing 6.1 7.7 8.3 4.8 5.1 3.4 3.1 2.9 2.6 4.3 4.0 3.4 3.0 2.7 2.6
Net acquisition of financial assets -0.6
0.0 0.3
0.0 -0.7
0.0 0.0
0.0 0.0
0.0 0.0
0.0 0.0
0.0 0.0
0.0 0.0
0.0 0.0
0.0 0.0
0.0 0.0
0.0 0.0
0.0 0.0
0.0 0.0
0.0
Domestic -0.6 0.3 -0.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Foreign 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Net incurrence of liabilities 5.5
0.0 8.1
0.0 7.6
0.0 4.8
0.0 5.1
0.0 3.4
0.0 3.1
0.0 2.9
0.0 2.6
0.0 4.4
0.0 4.0
0.0 3.4
0.0 3.0
0.0 2.7
0.0 2.6
0.0
Domestic 3.8 5.2 2.7 1.0 0.8 0.8 0.8 0.8 0.7 2.8 2.9 2.5 2.0 1.1 1.0
Debt securities 2.2 5.1 3.0 1.2 0.8 0.8 0.8 0.8 0.7 3.0 2.9 2.5 2.0 1.1 1.0
Loans 1.6 0.0 -0.4 -0.2 0.0 0.0 0.0 0.0 0.0 -0.2 0.0 0.0 0.0 0.0 0.0
Foreign 1.7 2.9 4.9 3.9 4.3 2.7 2.3 2.1 1.9 1.6 1.1 0.9 1.1 1.6 1.6
Loans 1.7 2.9 4.9 3.9 4.3 2.7 -0.8 2.1 -2.2 1.6 1.1 0.9 -1.6 1.6 -1.5
Budget support, gross 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Project loans, gross 2.3 3.1 6.4 6.7 7.4 5.9 5.3 4.6 4.5 4.2 3.9 3.7 3.5 3.5 3.4
Other, gross 0.0 0.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Amortization -0.6 -0.7 -1.5 -2.8 -3.1 -3.2 -6.1 -2.5 -6.7 -2.7 -2.8 -2.8 -5.1 -1.9 -4.9
Debt securities 0.0 0.0 0.0 0.0 0.0 0.0 3.2 0.0 4.1 0.0 0.0 0.0 2.6 0.0 3.1
Financing gap 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Memorandum items:
Net Domestic Financing 4.5 4.8 3.3 0.9 0.8 0.8 0.8 0.8 0.7 2.8 2.9 2.5 2.0 1.1 1.0
Backlog of VAT refunds (stock) 1.5 0.7 1.4 1.7 2.8 2.5 2.3 2.1 1.9 1.6 1.5 1.4 1.3 1.1 1.0
Basic balance (cash basis) 2 -3.9 -4.6 -1.9 1.8 2.2 2.4 2.1 1.7 1.9 -0.2 -0.1 0.3 0.5 0.8 0.9
3
Basic primary balance (cash basis) -1.1 -1.4 -1.8 0.5 0.9 2.7 3.4 4.3 4.7 1.0 1.7 2.3 2.6 2.8 2.8
Mining revenue 2.0 1.4 2.3 2.5 2.6 2.6 2.7 2.8 2.8 2.4 2.5 2.6 2.7 2.7 2.7
Stock of domestic debt, gross 24.1 27.3 30.0 31.7 29.8 28.5 26.8 25.2 23.8 32.3 32.4 32.1 31.1 29.3 27.4
Stock of external debt, gross 4 36.6 38.2 48.1 59.9 65.6 69.5 70.8 71.5 71.3 52.2 52.7 52.3 50.5 49.1 47.4
Total public debt 60.7 65.5 78.1 91.6 95.5 98.0 97.6 96.7 95.1 84.6 85.0 84.4 81.6 78.4 74.8
Nominal GDP (millions of kwacha) 216,098 246,252 279,441 313,496 349,831 385,196 423,750 464,432 507,929 306,384 334,593 364,466 397,756 435,924 479,266

1
Adjusted for accumulation/clearance of VAT refund claims and arrears relating to FRA, FISP, subsidies, public investment, and pensions.
2
Defined as total revenue minus total expenditure, excluding foreign-financed investment expenditure.
3
Defined as total revenue minus total expenditure, excluding all interest and foreign-financed investment expenditure.
4
Public and publicly guranteed external debt.

ZAMBIA
Table 3. Zambia: Monetary Accounts, 2016–24

(Millions of kwacha, unless otherwise indicated)
(Millions of kwacha, unless otherwise indicated)
2016 2017 2018 2019 2020 2021 2022 2023 2024 2019 2020 2021 2022 2023 2024
Monetary survey
Net foreign assets 21,881 21,985 24,810 28,689 29,775 30,897 34,900 40,259 42,168 29,006 29,669 31,124 30,566 33,418 33,803
Net domestic assets 22,686 32,100 38,187 41,834 48,503 55,263 60,775 65,666 74,845 41,342 47,932 54,420 64,012 71,559 82,962
Domestic claims 41,339 53,577 62,219 65,456 69,360 73,458 77,240 82,375 88,290 70,143 80,571 91,483 103,060 113,468 124,157
Net claims on central government 14,606 25,315 28,998 29,638 30,444 31,333 32,347 34,179 36,268 33,469 39,077 44,587 49,380 52,001 54,743
Claims on other sectors 26,733 28,262 33,222 35,818 38,916 42,125 44,894 48,195 52,022 36,674 41,494 46,896 53,679 61,466 69,414
Claims on other financial corporations 284 289 549 658 790 948 1,138 1,365 1,817 658 790 948 1,138 1,365 1,817
Claims on state and local government 74 36 67 79 115 176 258 378 513 79 94 144 211 309 419
Claims on public non-financial corporations 223 412 489 570 759 797 797 797 797 570 607 607 607 607 607
Claims on private sector 26,152 27,524 32,117 34,511 37,252 40,204 42,701 45,656 48,896 35,367 40,003 45,196 51,724 59,185 66,570
Other items net -18,653 -21,477 -24,032 -23,622 -20,857 -18,195 -16,465 -16,708 -16,708 -28,801 -32,639 -37,063 -39,048 -41,908 -44,807
Broad money (M3) 44,567 54,085 62,997 70,523 78,278 86,160 95,675 105,926 117,012 70,348 77,601 85,544 94,577 104,977 116,764
Of which: foreign exchange deposits … … … … … … … … … … … … … … …
Monetary authorities
Net foreign assets 15,216 12,707 10,256 9,180 6,311 2,657 -1,842 -2,342 -2,875 11,987 14,919 19,257 21,389 25,235 28,366
Asset 23,315 20,726 18,827 18,465 16,210 13,331 9,668 10,059 10,393 20,238 23,229 27,747 30,119 34,274 37,726
Liabilities -8,099 -8,019 -8,571 -9,285 -9,899 -10,675 -11,510 -12,401 -13,268 -8,251 -8,310 -8,490 -8,729 -9,040 -9,360
Net domestic assets 3,107 929 3,299 5,778 10,647 16,168 22,915 25,866 28,861 3,126 2,320 146 512 -407 -751
Net domestic claims 10,197 9,841 13,327 14,804 18,770 23,479 30,225 33,177 36,172 13,154 13,351 12,832 13,198 12,279 11,935
Net claims on other depository corporations 165 -368 30 1,401 5,091 9,419 15,710 18,388 20,763 -390 -955 -2,504 -3,113 -4,344 -5,417
Net claims on central government 9,940 10,122 13,204 13,275 13,492 13,786 14,114 14,202 14,550 13,417 14,119 15,062 15,911 16,036 16,493
Claims on other sectors 92 87 94 128 187 274 401 587 859 128 187 274 401 587 859
Other items (net) -7,090 -8,912 -10,028 -9,026 -8,123 -7,311 -7,311 -7,311 -7,311 -10,028 -11,031 -12,686 -12,686 -12,686 -12,686
Reserve money 18,323 13,636 13,555 14,958 16,958 18,825 21,073 23,524 25,986 15,113 17,239 19,403 21,901 24,828 27,615
Currency outside banks and cash in vaults 6,551 7,415 8,292 8,661 9,223 9,714 11,892 14,438 18,376 8,640 9,143 9,644 11,756 14,309 18,337
Other depository corporation reserves 11,740 6,181 5,207 6,999 8,522 9,985 10,169 10,202 12,117 7,173 8,875 10,626 11,123 11,624 14,132
Liabilities to other sectors 32 40 56 -702 -786 -874 -988 -1,115 -1,244 -700 -780 -867 -977 -1,105 -1,241
Memorandum items:
Reserve money (end-of-period, annual percent change) 12.8 -25.6 -0.6 10.3 13.4 11.0 11.9 11.6 10.5 11.5 14.1 12.6 12.9 13.4 11.2
Broad money (M3) (annual percent change) -5.7 21.4 16.5 11.9 11.0 10.1 11.0 10.7 10.5 11.7 10.3 10.2 10.6 11.0 11.2
Credit to the private sector (annual percent change) -9.4 5.2 16.7 7.5 7.9 7.9 6.2 6.9 7.1 10.1 13.1 13.0 14.4 14.4 12.5
Velocity (nominal GDP/M3) 4.8 4.6 4.4 4.4 4.5 4.5 4.4 4.4 4.3 4.4 4.3 4.3 4.2 4.2 4.1
Money multiplier (M3/reserve money) 2.4 4.0 4.6 4.7 4.6 4.6 4.5 4.5 4.5 4.7 4.5 4.4 4.3 4.2 4.2
Credit to the private sector (percent of GDP) 12.1 11.2 11.5 11.0 10.6 10.4 10.1 9.8 9.6 11.5 12.0 12.4 13.0 13.6 13.9
Gross foreign exchange reserves of the
Bank of Zambia (millions of U.S. dollars) 2,366 2,081 1,569 1,285 1,022 766 508 490 473 1,587 1,751 2,020 2,117 2,328 2,475
Exchange rate (kwacha per U.S. dollar, end period) … … … … … … … … … … … … … … …
Nominal GDP (million Kwacha) 216,098 246,252 279,441 313,496 349,831 385,196 423,750 464,432 507,929 306,384 334,593 364,466 397,756 435,924 479,266

ZAMBIA
Table 4a. Zambia: Balance of Payments, 2016–24

(Millions of U.S. dollars, unless otherwise indicated)
2016 2017 2018 2019 2020 2021 2022 2023 2024 2019 2020 2021 2022 2023 2024
Current account -685 -435 -708 -851 -792 -686 -616 -560 -489 -910 -822 -665 -574 -534 -489
Trade balance 238 960 514 417 715 889 1,025 1,156 1,230 428 811 1,002 1,140 1,256 1,344
Exports, f.o.b. 6,535 8,216 9,029 8,539 8,703 9,029 9,369 9,717 10,067 8,524 8,824 9,191 9,603 10,118 10,715
Of which: copper 4,399 6,119 6,658 6,053 6,107 6,284 6,521 6,754 6,881 6,053 6,107 6,346 6,649 7,020 7,454
Imports, f.o.b -6,296 -7,255 -8,515 -8,122 -7,987 -8,140 -8,344 -8,561 -8,837 -8,096 -8,013 -8,189 -8,463 -8,861 -9,371
Of which: oil -1,220 -1,028 -1,228 -1,092 -1,048 -1,028 -1,018 -1,027 -1,046 -1,146 -1,167 -1,189 -1,220 -1,272 -1,350
Services (net) -488 -609 -731 -733 -757 -773 -793 -810 -825 -713 -717 -718 -728 -749 -795
Income (net) -647 -1,145 -766 -783 -991 -1,044 -1,092 -1,153 -1,146 -883 -1,182 -1,229 -1,282 -1,354 -1,370
Of which: interest on public debt -337 -374 -567 -625 -724 -754 -768 -796 -757 -625 -708 -719 -722 -743 -704
Current transfers (net) 212 359 276 247 241 242 244 247 252 257 267 280 295 312 332
Of which: Private transfers 212 325 276 247 241 242 244 247 252 257 267 280 295 312 332
Capital and financial account 118 188 306 611 544 433 358 542 472 973 1,001 936 671 745 636
Capital account 55 58 66 69 61 55 50 45 42 72 67 63 60 57 55
Project grants 55 58 66 69 61 55 50 45 42 72 67 63 60 57 55
Financial account 63 130 240 542 483 378 308 496 430 901 934 873 612 688 581
Foreign direct investment (net) 486 1,180 537 481 669 871 1,029 1,043 1,062 600 974 1,221 1,436 1,520 1,614
Portfolio investment (net) 417 235 -238 -16 -7 23 748 -5 996 33 92 221 946 193 1,193
Financial derivatives (net) 15 68 10 9 9 9 9 9 9 9 10 10 11 11 12
Other investments (net) -855 -1,353 -69 68 -188 -524 -1,478 -551 -1,638 258 -141 -579 -1,782 -1,036 -2,238
Public sector (net) 711 1,012 1,740 1,833 1,376 907 -315 390 -717 1,288 662 524 -563 368 -664
Disbursements 864 1,144 2,189 2,773 2,224 1,740 1,251 1,100 1,103 2,228 1,510 1,356 1,000 1,050 1,103
Of which: budget support 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Amortization due -154 -132 -449 -940 -848 -833 -1,566 -710 -1,820 -940 -848 -832 -1,563 -682 -1,767
Commercial banks (net) -64 -154 -276 -276 0 0 0 0 0 -276 0 0 0 0 0
Other sectors -1,501 -2,211 -1,533 -1,489 -1,564 -1,431 -1,163 -941 -920 -754 -803 -1,103 -1,219 -1,404 -1,573
Errors and omissions 25 31 -43 0 0 0 0 0 0 0 0 0 0 0 0
Overall balance -541 -216 -445 -240 -248 -253 -258 -18 -17 62 179 272 97 210 147
Financing 542 217 444 240 248 253 258 18 17 -62 -179 -272 -97 -210 -147
Central bank net reserves (- increase) 542 217 444 240 248 253 258 18 17 -62 -179 -272 -97 -210 -147
Of which: Gross reserve change 611 290 506 284 263 256 258 18 17 -18 -164 -269 -97 -210 -147
Of which: Use of Fund resources -69 -74 -61 -44 -15 -3 0 0 0 -44 -15 -3 0 0 0
Exceptional financing 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Financing gap 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Memorandum items:
Current account (percent of GDP) -3.3 -1.7 -2.6 -3.6 -3.4 -2.9 -2.6 -2.3 -2.0 -3.7 -3.2 -2.4 -2.0 -1.8 -1.5
Total official grants (percent of GDP) 0.3 0.4 0.2 0.3 0.3 0.2 0.2 0.2 0.2 0.3 0.3 0.2 0.2 0.2 0.2
Change in copper export volume (percent) -4.8 9.7 2.8 -2.0 2.0 2.0 6.7 6.6 6.5 -2.0 2.0 3.0 6.7 6.6 6.5
Copper export price (U.S. dollars per tonne) 4,868 6,170 6,530 6,058 5,991 6,045 6,090 6,123 6,123 6,058 5,991 6,045 6,090 6,123 6,123
Crude oil price 43 53 68 66 64 61 59 58 59 66 64 61 59 58 59
Gross international reserves (millions of U.S. dollars) 2,366 2,081 1,569 1,285 1,022 766 508 490 473 1,587 1,751 2,020 2,117 2,328 2,475
In months of prospective imports 3.3 2.4 1.9 1.6 1.3 0.9 0.6 0.6 0.5 2.0 2.1 2.4 2.4 2.5 2.5
GDP (millions of U.S. dollars) 20,941 25,868 26,720 23,946 23,342 23,415 23,636 23,951 24,401 24,914 25,874 27,137 28,587 30,251 32,119

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Table 4b. Zambia: Balance of Payments, 2016–24

(Percent of GDP, unless otherwise indicated)
2016 2017 2018 2019 2020 2021 2022 2023 2024 2019 2020 2021 2022 2023 2024
Current account -3.3 -1.7 -2.6 -3.6 -3.4 -2.9 -2.6 -2.3 -2.0 -3.7 -3.2 -2.4 -2.0 -1.8 -1.5
Trade balance 1.1 3.7 1.9 1.7 3.1 3.8 4.3 4.8 5.0 1.7 3.1 3.7 4.0 4.2 4.2
Exports, f.o.b. 31.2 31.8 33.8 35.7 37.3 38.6 39.6 40.6 41.3 34.2 34.1 33.9 33.6 33.4 33.4
Of which: copper 21.0 23.7 24.9 25.3 26.2 26.8 27.6 28.2 28.2 24.3 23.6 23.4 23.3 23.2 23.2
Imports, f.o.b -30.1 -28.0 -31.9 -33.9 -34.2 -34.8 -35.3 -35.7 -36.2 -32.5 -31.0 -30.2 -29.6 -29.3 -29.2
Of which: oil -5.8 -4.0 -4.6 -4.6 -4.5 -4.4 -4.3 -4.3 -4.3 -4.6 -4.5 -4.4 -4.3 -4.2 -4.2
Services (net) -2.3 -2.4 -2.7 -3.1 -3.2 -3.3 -3.4 -3.4 -3.4 -2.9 -2.8 -2.6 -2.5 -2.5 -2.5
Income (net) -3.1 -4.4 -2.9 -3.3 -4.2 -4.5 -4.6 -4.8 -4.7 -3.5 -4.6 -4.5 -4.5 -4.5 -4.3
Of which: interest on public debt -1.6 -1.4 -2.1 -2.6 -3.1 -3.2 -3.3 -3.3 -3.1 -2.5 -2.7 -2.6 -2.5 -2.5 -2.2
Current transfers (net) 1.0 1.4 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0
Budget support grants 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Sector-wide approach grants 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Private transfers 1.0 1.3 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0
Capital and financial account 0.6 0.7 1.1 2.6 2.3 1.8 1.5 2.3 1.9 3.9 3.9 3.5 2.3 2.5 2.0
Capital account 0.3 0.2 0.2 0.3 0.3 0.2 0.2 0.2 0.2 0.3 0.3 0.2 0.2 0.2 0.2
Project grants 0.3 0.2 0.2 0.3 0.3 0.2 0.2 0.2 0.2 0.3 0.3 0.2 0.2 0.2 0.2
External debt cancellation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Financial account 0.3 0.5 0.9 2.3 2.1 1.6 1.3 2.1 1.8 3.6 3.6 3.2 2.1 2.3 1.8
Foreign direct investment (net) 2.3 4.6 2.0 2.0 2.9 3.7 4.4 4.4 4.4 2.4 3.8 4.5 5.0 5.0 5.0
Portfolio investment (net) 2.0 0.9 -0.9 -0.1 0.0 0.1 3.2 0.0 4.1 0.1 0.4 0.8 3.3 0.6 3.7
Financial derivatives (net) 0.1 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other investments (net) -4.1 -5.2 -0.3 0.3 -0.8 -2.2 -6.3 -2.3 -6.7 1.0 -0.5 -2.1 -6.2 -3.4 -7.0
Public sector (net) 3.4 3.9 6.5 7.7 5.9 3.9 -1.3 1.6 -2.9 5.2 2.6 1.9 -2.0 1.2 -2.1
Disbursements 4.1 4.4 8.2 11.6 9.5 7.4 5.3 4.6 4.5 8.9 5.8 5.0 3.5 3.5 3.4
Of which: budget support 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Amortization due -0.7 -0.5 -1.7 -3.9 -3.6 -3.6 -6.6 -3.0 -7.5 -3.8 -3.3 -3.1 -5.5 -2.3 -5.5
Commercial banks (net) -0.3 -0.6 -1.0 -1.2 0.0 0.0 0.0 0.0 0.0 -1.1 0.0 0.0 0.0 0.0 0.0
Other sectors -7.2 -8.5 -5.7 -6.2 -6.7 -6.1 -4.9 -3.9 -3.8 -3.0 -3.1 -4.1 -4.3 -4.6 -4.9
Errors and omissions 0.1 0.1 -0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Overall balance -2.6 -0.8 -1.7 -1.0 -1.1 -1.1 -1.1 -0.1 -0.1 0.3 0.7 1.0 0.3 0.7 0.5
Financing
Central bank net reserves (- increase) 2.6 0.8 1.7 1.0 1.1 1.1 1.1 0.1 0.1 -0.3 -0.7 -1.0 -0.3 -0.7 -0.5
Of which: Gross reserve change 2.9 1.1 1.9 1.2 1.1 1.1 1.1 0.1 0.1 -0.1 -0.6 -1.0 -0.3 -0.7 -0.5
Of which: Use of Fund resources -0.3 -0.3 -0.2 -0.2 -0.1 0.0 0.0 0.0 0.0 -0.2 -0.1 0.0 0.0 0.0 0.0
Exceptional financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Financing gap 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Memorandum items:
Current account (percent of GDP) -3.3 -1.7 -2.6 -3.6 -3.4 -2.9 -2.6 -2.3 -2.0 -3.7 -3.2 -2.4 -2.0 -1.8 -1.5
Total official grants (percent of GDP) 0.3 0.4 0.2 0.3 0.3 0.2 0.2 0.2 0.2 0.3 0.3 0.2 0.2 0.2 0.2
Change in copper export volume (percent) -4.8 9.7 2.8 -2.0 2.0 2.0 6.7 6.6 6.5 -2.0 2.0 3.0 6.7 6.6 6.5
Copper export price (U.S. dollars per tonne) 4,868 6,170 6,530 6,058 5,991 6,045 6,090 6,123 6,123 6,058 5,991 6,045 6,090 6,123 6,123
Crude oil price 43 53 68 66 64 61 59 58 59 66 64 61 59 58 59
Gross international reserves (millions of U.S. dollars) 2,366 2,081 1,569 1,285 1,022 766 508 490 473 1,587 1,751 2,020 2,117 2,328 2,475
In months of prospective imports 3.3 2.4 1.9 1.6 1.3 0.9 0.6 0.6 0.5 2.0 2.1 2.4 2.4 2.5 2.5
GDP (millions of U.S. dollars) 20,941 25,868 26,720 23,946 23,342 23,415 23,636 23,951 24,401 24,914 25,874 27,137 28,587 30,251 32,119

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Table 5. Zambia: Financial Soundness Indicators, 2008–18

Table 7.(Percent, unless otherwise
Zambia: Financial Soundness indicated)
Indicators, 2008–18
(Percent, unless otherwise indicated)
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Dec
Capital adequacy
Regulatory capital to risk-weighted assets 18.6 22.3 22.1 19.2 21.3 26.8 27.0 21.2 26.2 26.5 22.1
Tier 1 regulatory capital to risk-weighted assets 15.7 18.9 19.1 16.8 19.4 24.5 24.6 19.2 23.4 24.5 20.1
Capital to total assets 9.9 11.2 10.4 10.2 12.0 14.1 15.1 12.2 13.5 12.6 12.3
Asset quality
Past due advances (NPL) to total advances 7.2 12.6 14.8 10.4 8.1 7.0 6.1 7.3 9.7 11.5 11.0
Loan loss provisions to nonperforming loans 104.6 86.6 80.3 76.7 73.5 83.2 76.5 70.5 71.5 69.2 86.4
Bad debt provisions to advances 6.1 10.9 11.9 8.0 6.0 5.8 3.9 4.6 5.6 8.0 9.5
Loan concentration
Of Which
Households 30.1 30.9 32.2 30.8 34.3 34.5 36.0 30.2 28.7 28.8 29.0
Government and parastatals 1.9 3.1 4.6 4.7 3.9 2.1 4.3 3.0 4.8 5.4 7.5
Sectoral Breakdown
Agriculture 16.0 19.0 17.6 17.7 22.6 20.2 16.6 17.3 17.0 20.3 16.8
Mining 5.0 4.0 3.2 4.2 5.7 6.6 5.0 6.4 6.3 7.5 7.1
Manufacturing 11.0 12.0 12.7 12.2 11.3 9.5 11.5 13.5 12.8 8.2 9.2
Construction 4.0 3.0 5.8 4.2 3.7 3.5 3.4 3.4 3.9 3.7 3.0
Services 9.0 8.0 7.0 7.1 3.9 4.1 2.5 2.7 1.8 2.4 4.2
Others 55.0 54.0 53.7 54.6 52.8 56.1 61.0 56.7 58.2 58.1 59.8
Earnings and profitability

Return on average assets 3.6 2.1 2.9 3.7 3.9 3.4 3.7 2.8 2.5 3.1 3.0
Return on equity 20.8 9.4 12.1 25.5 20.8 18.2 17.3 13.1 12.3 15.4 14.7
Gross interest income to total gross income 66.6 65.1 58.6 59.3 61.3 64.5 66.4 67.1 68.6 69.0 67.9
Gross noninterest income to total gross income 33.4 34.9 41.4 40.7 38.7 35.5 33.7 32.9 31.4 31.0 32.1
Net interest margin 10.4 10.7 9.0 8.1 8.4 8.3 8.5 8.2 8.7 9.1 9.1
Liquidity
Liquid assets to total assets 35.5 38.0 43.8 40.3 36.0 38.9 35.8 34.8 39.1 45.5 47.0
Liquid assets to total deposits 49.9 52.6 58.5 53.3 49.0 52.6 49.8 47.9 54.2 56.5 57.0
Advances to deposits ratio 66.3 60.1 53.1 57.1 66.0 61.4 62.0 56.4 50.0 45.2 47.3
Exposure to foreign currency

Foreign currency loans to total gross loans 42.1 36.4 32.8 39.1 28.7 25.6 29.0 36.9 35.7 41.6 44.5
Foreign currency liabilities to total liabilities 35.8 38.0 39.6 39.0 22.9 30.4 32.1 48.9 45.0 44.0 46.6
Net open position in foreign exchange to capital 6.9 2.5 4.1 5.5 2.8 3.6 1.6 4.7 0.8 1.4 1.7

ZAMBIA
Annex I. Main Recommendations of the 2017 Article IV

Consultation and FSAP
Main Recommendations of the 2017 Article IV Consultation
Fiscal Policy
Recommendations Status
Debt sustainability. Lower the debt level, including Not implemented. The debt stock increased by about
by restraining external non-concessional borrowing, 10 percent of GDP in 2018 and DSA continues to
in order to move from high to moderate risk of debt show a high risk of debt distress.
distress rating.
Fiscal consolidation. Reduce the overall fiscal deficit. Not implemented. The fiscal deficit widened
significantly as there were large spending overruns
on capital outlays, compounded by continued arrears
on VAT refunds and suppliers’ credits.
Revenue mobilization. Increase domestic revenues by Not implemented.
broadening VAT and CIT tax base, introduce land
titling, reducing widespread exemptions/incentives.
Fuel prices. Recover importation and procurement Implemented. The Energy Regulatory Board has been
costs in the supply value chain and reflect changes in reviewing fuel prices every sixty days and has
international prices and the exchange rate. changed the fuel prices when needed to recover
procurement costs.
Public investment management. Prioritize Not implemented. The government has continued to
infrastructure projects in line with absorptive capacity approve public investment projects without
by setting up an institutional framework for approval implementing a proper framework for coordinating
of public investment projects, including for large and managing the identification, preparation,
projects. appraisal and implementation of public investment
projects to ensure efficiency and value for money.
Public Financial Management. Roll out IFMIS, enhance Partially implemented. IFMIS was rolled out. However,
commitment controls, and implement the Treasury purchase orders on goods and services are issued
Single Account (TSA) to strengthen transparency and outside IFMIS, and expenditure overshooting and
accountability and reduce the risk of accumulating arrears accumulation point to weak expenditure
arrears. controls. There remain a large number of accounts
and significant balances outside the TSA
(1-2 percent of GDP) held at commercial banks by
government entities.

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Main Recommendations of the 2017 Article IV Consultation (Concluded)
Public Financial Management legislation. Improve Ongoing. The approval in April 2018 of the new
transparency and credibility of fiscal policy. Public Finance Management Act needs to be
complemented by approving other critical legislation
such as the Planning and Budgeting Bill, the revisions
to Loan and Guarantees Act, and the Public
Procurement Act.
Monetary and Financial Sector Policies
Recommendations Status
Monetary policy stance. Maintain a relatively tight Partially implemented. BoZ kept its tight monetary
monetary policy stance and rebuild reserves buffers. stance in 2017, but started unwinding its stance in
2018, in line with reduced inflationary pressures.
Reserves have continued to decline, largely reflecting
higher external debt payments and a widening
current account balance. In May 2019, the BoZ
increased its policy rate to 10.25 percent.
Monetary Policy Framework. Grant BoZ formal Ongoing. The amended draft BoZ Act addresses
operational independence to pursue price stability as issues related to operational independence of the
its primary mandate by amending the BoZ Act. BoZ and is currently with the Ministry of Finance.
Bank supervision. Strengthen banking supervision (See discussion of FSAP.)
capacity and enhance its crisis preparedness.
Energy Sector
Recommendation Status
Finalize the energy sector Cost of Service Study. Not implemented. Having enacted an interim electric
tariff increase of 75 percent for 2017, the Government
initiated a Cost of Service Study (COSS) in May 2017,
to inform the next adjustment to attain full cost
recovery in electricity pricing and pave the way for a
reform of the power sector. The COSS has not been
yet completed. A ZESCO-proposed a tariff increase
was declined in May.

ZAMBIA
Main Recommendations of the 2017 FSAP

Recommendations Implementation Status
Upgrade the BoZ and Banking (BFSA) Acts to grant BoZ In progress. The new BFSA and the amended draft BoZ
operational independence, provide for Basel II–III standards, Act addresses issues related to operational
sole BoZ licensing powers, setting down broad supervisory independence, Basel II/III standards, and licensing. The
principles and leaving the details for regulations. BFSA has been streamlined and the BoZ is currently
working on a number of regulations to operationalize
the Act.
Largely completed. All banks except three (accounting

Complete onsite inspections of all banks and nonbanks and
for 4.7 percent of total banking sector assets) and 60
conduct an asset quality review that focuses on the loan
percent of NBFIs have been examined and asset quality
classification process.
review completed.
Introduce a regular cycle of onsite inspections on a risk basis, In Progress.

informed by offsite analysis.
Implement a centralized, structured, relational database for Completed. The Bank supervision system is currently in
banking supervision and stress testing. use as a centralized data base system for the Banking
and Supervision Department.
Urgently increase staff resources, in number and expertise, in Largely completed. Several new staff have already been
an orderly and manageable fashion. added and recruitment is underway for a few vacant
positions. Priority is being given to capacity building.
Introduce a consolidated supervision regime and BoZ In Progress.
implement the new risk-based approach to onsite
supervision.
Introduce proactive information sharing by BoZ with home In Progress. The BoZ has started to engage the home
supervisors of Zambian banks and ensure that BoZ is involved regulators on resolution plans for parent banks by
in resolution plans of parents of Zambian banks. ensuring that it is part of the agenda items for
Supervisory Colleges.
Issue risk management directives incorporating concentration In progress. Draft to be issued soon.
and cross-border exposure limits.
Strengthen the Anti-Money Laundering/Combatting the In 2017, the BoZ revised and strengthened the AML/CFT
Financing of Terrorism (AML/CFT) legal framework and legal framework and subsequently issued directives
terrorist financing offense, in line with the Financial Action which apply to all reporting entities licensed or
Task Force (FATF) standards. designated by the BoZ.
Stipulate exceptional nature of ELA in regulatory texts and In progress. The BoZ Act is undergoing review.
establish adequate statutory safeguards to prevent the BoZ
from providing solvency support.
Include purchase and assumption, bridge bank, and bail-in
Largely implemented. Other than bail-in, the proposed
resolution provisions in new BFSA.
resolution recommendations have been addressed in the
2017 BFSA. However, a request has been made to amend
the 2017 BFSA to enable the above measures to be
affected without BoZ taking possession of the bank.

ZAMBIA
Main Recommendations of the 2017 FSAP (Concluded)
Refine Draft Deposit Protection Scheme (DIS) Bill in line with In progress.
IADI norms.
Introduce DIS law only once the preconditions for deposit In progress. The BoZ is working on a problem bank
protection are fully in place, as per IADI norms. resolution regime to deal with banks with supervisory
weaknesses and strengthen their performance, as
precondition for deposit protection. A Draft problem
bank management and resolution framework has been
developed and is expected to be finalized before end-
2019.

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Annex II. External Sector Assessment

Zambia’s external position weakened in 2018 along with deteriorating fundamentals as the current
account deficit widened and the foreign exchange (FX) reserves declined to less than two months of
import cover. A large exchange rate depreciation in September reflected both weaker fundamentals
(wider fiscal imbalances and deteriorated terms of trade) and negative market sentiment following
Zambia’s sovereign rating downgrades amid the broader pressures on emerging markets in late 2018.
The currency stabilized toward the end of the year but weakened further this spring. The rapidly
increasing public sector external indebtedness and declining FX reserves suggest that pressures on the
real exchange rate may persist from a balance sheet perspective. However, the real exchange rate
based on the REER model is estimated to be broadly in line with its norm at end-2018,1 and the
regression-based EBA-lite current account model finds no evidence of a clear external sector
misalignment. With conflicting signals between different approaches, the external position is assessed
by staff to be moderately weaker than fundamentals and desirable policies on the basis of the
deteriorated external balance sheet driven by the buildup of public debt. A steadfast fiscal adjustment,
accompanied by ongoing reforms to improve structural competitiveness, is needed to strengthen
external positions going forward and address the underlying causes of the external imbalances.
External Balance Sheet
1. Zambia’s net international investment position (NIIP) has started to stabilize after
having deteriorated rapidly since the early 2010s.
Zambia has been a net debtor since 2011 and its NIIP Zambia: External Balance Sheet
Zambia: External Balance Sheet
0%
registered –106 percent of GDP at end-June 2018
% of GDP
-20%
(latest available official statistics).2 It consisted of 27 -40%

-60%
percent of GDP in foreign assets (largely reserve assets -80%
and currency and deposits held overseas by resident -100%

-120%
mining companies) and 134 percent of GDP in foreign -140%
liabilities – largely FDI liabilities (76 percent of GDP) and 2011 2012 2013 2014 2015 2016 2017 2018
Q2
foreign borrowing of the public sector. However, the Public sector NIIP 1/ Private sector NIIP 2/ NIIP
Sources: IMF staff estimates and Bank of Zambia.
sectoral composition has shifted with rapidly increasing 1/ Approximated by reserves minus external PPG debt.
2/ Difference between total NIIP and estimated public sector NIIP.
public sector external indebtedness replacing private

sector foreign liabilities.
2. Zambia’s large negative NIIP poses a significant risk to external sustainability and
points to a need for current account adjustment. The deterministic balance-sheet approach of the
EBA-lite methodology indicates that a real effective exchange rate adjustment over the medium-term
is needed to improve the trade balance to stabilize the NIIP at its end-June 2018 level (–106 percent
of GDP) assuming no policy adjustment. Stabilizing the NIIP at a lower and more sustainable level
(e.g. at its 2011-14 average level of –58 percent of GDP) would, ceteris paribus, imply a larger real
exchange rate adjustment. This assessment is, however, very sensitive to the assumptions on the
1
There is also no evidence of a parallel exchange rate market in Zambia
2
Comparable IIP statistics are not available for the pre-2011 period.

ZAMBIA
rates of return on foreign assets and liabilities (for which supporting data are scarce and of poor
quality) especially when the gross assets/liabilities positions are large.3 Nevertheless, with large fiscal
imbalances expected to continue pressing down the NIIP going forward, a decisive adjustment to
reduce the public sector’s external indebtedness is needed to directly tackle the balance sheet
mismatch which cannot be easily resolved by an exchange rate adjustment.
Current Account
3. Zambia’s external current account deficit widened modestly in 2018 as foreign-

financed public investment project-related imports and interest payments increased. The
current account has moved into deficit since 2015 and registered a 2.6 percent of GDP deficit in
2018. Copper prices declined in the course of 2018 while oil prices were broadly unchanged on
average, leading to deteriorated terms of trade. Rising interest payments on public debt as well as
elevated non-oil imports (including those related to large foreign-financed public investment
projects) have exerted pressure on the non-copper current account. The current account deficit is
expected to widen again in 2019 absent policy change before gradually declining as large project-
related imports unwind and the negative repercussions of government arrears accumulation
contribute to import compression.
Commodity Prices Decomposition of Changes in Terms of

(indexes, January 2011=100) Decomposition of Trade
Changes in Terms of Trade
80
60
40
20
0
-20
-40
2001
2002
2003
2004
2007
2008
2009
2010
2011
2013
2014
2015
2016
2017
2005
2006
2012
2018
2019 Proj.
Copper Price Copper Volume Oil Price
Oil Volume Other Factors ToT Change
Source: WEO Source: IMF staff calculations
3
Given the large exchange rate adjustment need implied by the deterministic approach, a complementary
probabilistic assessment to construct the distribution of needed REER adjustments to deliver external sustainability
seems warranted but is practically difficult to implement given the data limitations.

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Current Account and Its Components Zambia: Current Account Balance and its
(InCurrent
percent ofItsGDP)
Account and Components Components
Zambia: (Percent
Current Account Balance of Components
and its GDP)
(in percent of GDP) (Percent of GDP)
40
30
Budget Support Grants Public Debt Interest Oil Other Factors Copper CAB
30
20
20
10
10
0
0
-10
-10
-20
-20 non-copper exports Copper trade balance
non-copper current account current account
-30
-30
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Proj. 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Proj.
Sources: Bank of Zambia and IMF staff estimates.
4. The current account deficit at end-2018 was broadly in line with its EBA-lite norm. The
current account approach of the EBA-lite methodology considers external balance determinants
including (i) policy variables; (ii) non-policy fundamentals; and (iii) cyclical factors. The desirable fiscal
policy stance is assumed to be -2.2 percent of GDP over the medium-term. On this basis, the CA
approach estimates a multilaterally consistent cyclically adjusted CA norm of -2.9 percent of GDP and
an insignificant CA gap of -0.2 percent of GDP in 2018. While large fiscal imbalances (evidenced by a
negative fiscal policy gap) contributed to external imbalances, there are positive but undesirable
policy gaps in other areas including subdued private credit growth and impaired social safety net
(proxied by public health expenditure). These offsetting factors (between the public sector and
private sector’s savings and investment balances) explain the current account’s broad alignment with
fundamentals and desirable policies. However, to gradually rebuild FX reserves (currently well below
adequate) against subdued capital inflows absent major change in sentiment, the external position
needs to be strengthened going forward. Under current policies, the external imbalances are
projected to further widen in the near-term, putting pressure on the real effective exchange rate.
Zambia: Real Effective Exchange Rate (REER) Gap
Real Exchange Rate

5. After a relatively calm era following the sharp depreciation in 2014/15, the currency
came under renewed pressure in late 2018. The exchange rate depreciated by 20 percent against
the U.S. dollar in September 2018, reflecting both weakened fundamentals (widened fiscal
imbalances and deteriorated terms of trade) and weakened confidence following the sovereign
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rating downgrades by all the three major rating agencies. Unlike during the 2014/15 episode, the
Bank of Zambia did not intervene in the market or respond to the sharp depreciation by tightening
the monetary stance. The REER recent depreciation is expected to contribute only gradually and
marginally to improving the current account (with a limited impact on mostly dollar-denominated
exports and larger impact on imports through both price and income channels), assuming a large
but not full pass-through of depreciation to inflation with a lag.
Zambia: NEER, REER, and Exchange Rate Zambia: REER and Copper
Zambia: REER and Copper
(January 2010-March 2019) (indices, 2010=100)
Zambia: NEER, REER and Exchange Rate (indices, 2010=100)
(January 2010-October 2018)
120 0.24 140
NEER REER USD/Kwacha (RHS) 120
110 0.22
100
0.20
100 80
0.18
90
60
0.16 40
80
0.14 20
70 0
0.12
2001M1
2002M1
2003M1
2004M1
2005M1
2006M1
2007M1
2008M1
2009M1
2010M1
2011M1
2012M1
2013M1
2014M1
2015M1
2016M1
2017M1
2018M1
2019M1
60 0.10
50 0.08
Oct-13
Oct-18
May-13
May-18
Apr-11
Dec-12
Apr-16
Dec-17
Aug-14
Jul-12
Sep-11
Jul-17
Sep-16
Jan-10
Mar-14
Jan-15
Mar-19
Jun-10
Nov-10
Feb-12
Jun-15
Nov-15
Feb-17
Zambia REER LME copper price
Note a decline represents a depreciation

Source: Bank of Zambia and IMF staff estimates. Source: Bank of Zambia and Haver Analytics.
Note: A decline represents depreciation.
6. The EBA-lite REER approach suggests that the real effective exchange rate was broadly
in line with its equilibrium level at end-2018. The REER model assumes that actual real interest
rate will converge to a value that is consistent with inflation and output stabilization needs in the
near-term. Staff estimates this to be 3½ percent for Zambia (the current difference between the
policy rate and the inflation rate is about 2¾ percent). Under these assumptions, the REER is
estimated to be roughly 5 percent lower than its equilibrium value (within the 95 percent confidence
interval). The REER is also found to be broadly in line with the price developments of copper,
Zambia’s major exporting commodity.
Reserves
7. Zambia’s reserves buffer has further deteriorated as external imbalances widened.

Export earnings recovered somewhat compared to 2017 benefiting from higher average copper
prices while FDI declined due to uncertainties around the macro outlook. Foreign exchange outflows
were largely driven by external debt payments which have increased significantly. The Bank of
Zambia has continued opportunistic purchases of foreign exchange in the FX market to support
reserves and instructed mines to pay mineral royalty directly to the central bank in foreign currency.
However, the opportunistic FX purchases were deterred by pressures on the kwacha during the
episodes of large depreciation in September 2018 and May 2019, and international reserves declined
by more than $500 million in 2018 and a further $200 million between January and May 2019.

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8. The current reserves level is below what can be considered adequate. At US$1.4 billion it
provides 1¾ month import cover, significantly lower than in several of its peers, including those with
relatively more diversified exports products and markets. Zambia’s reserves holdings are mainly for
precautionary purpose (consumption smoothing in the event of shocks), preventing disorderly
market reactions, and cover against
capital flight. Zambia’s heavy reliance on Zambia: Gross Reserves
Zambia: Gross Reserves
copper exports and the need to protect Stock of reserves (US$ millions)
against current account shocks driven by Gross - In months of next year's imports (Rhs)
Unencumbered - In months of next year's imports (Rhs)
volatility in copper prices suggest a 3,500 5
higher reserves buffer than the three- 3,000

4
month rule may be needed. Indeed, a 2,500
3
cost-benefit analysis developed by Fund 2,000
staff for low-income countries suggests 1,500

2
an optimal level range of 3½-4 months of

1,000
1
current year’s imports.4 On a different

500
0 0
metric, the current reserves level provides 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Proj.
just about a full year coverage of external
debt payments (which have been rapidly
rising; discussed in detail in the DSA). In
relation to broad money, another Zambia: Gross Reserves in Months of Imports
common measure for reserve adequacy Relative to Peers: 2018
against capital flight (of residents), the
current reserves level provides an
80 percent coverage. Non-resident
holdings of domestic currency debt had
increased rapidly during 2016-17
(currently at about $670 million) in
response to attractive yields and relative
stability in exchange rate but now could
be susceptible to reversal, posing a risk to
the balance of payments given the
relatively low level of reserves.
Source: IMF World Economic Outlook.
4
The assessment attempts to balance the absorption smoothing benefits of reserves in the event of adverse shocks
against the opportunity cost of holding reserves, taking into account country specificities including the exchange rate
regime, fiscal balance, institutional quality, the nature of external drains and degree of access to international capital
markets. For details, refer to IMF Working Paper 11/249 “Optimal Precautionary Reserves for Low-Income Countries: A
Cost-Benefit Analysis”.

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Assessment of Structural Competitiveness
9. Zambia’s exports are heavily Concentration Index, Exports

concentrated in a few products. The (Closer to 1 when exports are highly
exports concentration index, prepared by concentrated on a few products)
the United Nations Conference on Trade and
Development,5 indicates that Zambia’s
exports are much less diversified than the
average Sub-Saharan Africa level. Copper
exports represent around 70 percent of the
total exports, which makes exports highly
vulnerable to fluctuations in copper price.
Exports of agricultural products account for
most of the remainder (over 20 percent of Source: United Nations Conference on Trade and Development.
all exports).
10. Reforms already undertaken have improved the underlying framework for business in
several areas and set a sound basis for improving structural competitiveness with resolution of
current pressures. Notable improvements were registered in Zambia’s Doing Business Indicators in
recent years. For 2019, Zambia ranks higher on Overall Ease of Doing Buisiness than the Sub-Saharan
Africa (SSA) average and the SSA Low-Income Developing Countries Frontier Markets6 (SSA-LIDC FM)
average. Earlier reforms have helped improve frameworks for credit access and tax payment. Weaker
areas on business environment include trading across borders, registering property, and enforcing
contracts.7 According to the World Economic Forum Global Competitiveness, for 2017–2018, the
main constraints to doing business as perceived by investors were access to financing, corruption
and tax rates.8
5
The UNCTAD export concentration index is a normalized Herfindahl-Hirschmann index which takes values between 0
and 1. The Herfindahl-Hirschmann index is estimated as the sum of the squares of the export shares of the products.
1 corresponds to a high concentration of exports on a few products, and 0 corresponds to a perfect diversification
among a series of products.
6
The Doing Business Indicators for a calendar year are published the year before. These indicators should be
interpreted with caution due to a limited number of respondents, a limited geographical coverage and some
standardized assumptions on business constraints and information availability. SSA Low-Income Developing
Countries Frontier Markets include Cote d’Ivoire, Ghana, Kenya, Mozambique, Nigeria, Senegal, Tanzania, Uganda, and
Zambia.
7
For more details, see the 2019 Doing Business Report.
8
Results from the World Economic Forum’s Executive Opinion Survey. Caution is required when interpreting these
results, as they may be affected by recording errors, information availability, and sample size.

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Zambia: Overall Ease of Doing Business, Zambia: Components of the Ease of Doing
2019 Business
(Rank, lower is better) (Distance to the Frontier: 0-100; 100 is best)
Source: Doing Business 2019
11. With a resolution of current uncertainties, improvement in the business climate will
boost competitiveness and attract investment. The reforms initiated by the Zambian government
to adress weaknesses in competitiveness and improve governance include reforms on: access to
credit (use of moveable collateral to access finance); tax payments (introduction of an online
platform for filling and paying taxes); trading (implementation of a web-based data management
system); and contract enforcement (online availability of commercial matters judgements at the
appellate and supreme court levels). Improving efficiency in the petroleum product procurement
system would cut fuel cost and enhance competitiveness. In the mining sector, establishing a mining
tax regime in line with international best practices would provide a better business environment for
mining investors.
12. Structural reforms to enhance the diversification of export products would improve
resilience to external shocks. With a potential market from surrounding countries facing maize
deficits, developing and modernizing agriculture in Zambia would enhance exports and benefit to
the maize sector. Establishing a more stable and predictible regulation on maize exports by
improving the regulation of maize exports and limiting the role of the Food Reserve Agency in the
marketing of maize could attract more private investors. The savings from better management of
farm subsidy programs could be used to invest in measures to enhance crop yields and long-term
competitiveness.

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Annex III. Risk Assessment Matrix

Relative
Source of Risk Impact if realized Policy Response
Likelihood
Domestic Risks
Delayed/insufficient fiscal H H. Continued accumulation of Implement credible fiscal
adjustment particularly domestic arrears would increase adjustment measures, remove
ahead of elections.
stress on the financial sector unnecessary exemptions to
through higher NPLs and widen the tax base and increase
hamper private sector activity. domestic revenue; consolidate
Domestic refinancing risks for capital expenditures by
government securities would prioritizing infrastructure
increase. Uncertainty over VAT projects and postponing those
status as well as refunds could with less growth impact and
hurt revenue collection and those not aligned with
exacerbate the fiscal deficit, development priorities; reduce
while weakening incentives for public sector wage bill by
new investment slowing down restricting new hires to priority
FDI inflows. Non-resident exit sectors.
from government domestic
securities market would
adversely impact reserves and
further pressure the exchange
rate. Debt sustainability would
be placed in even greater
jeopardy. Significant downward
pressures on growth.
Continued drought. M H. Adverse impact on Provide effective support to

agriculture sector and on the vulnerable impacted
poor; higher food price populations; diversify food
inflation; reduced agricultural crops away from maize to crop
exports (maize); higher varieties that better aligned to
spending on social safety nets the shortened rainy seasons;
and on subsidies (Farmer Input consider medium-term
Support Program); negative strategies such as reservoir dam
impact on hydropower to help regulate water flow to
generation; and downward main dams during high or low
pressures on growth. rain periods. Tighten monetary
policy if second-round
inflationary effects are
significant.

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Rising social tensions. M M. Public sector salary arrears to Implement orderly fiscal
employees result in strikes; adjustment notably by
Negative impact on investor increasing domestic revenue,
confidence. reducing capital expenditures
and containing the wage bill to
avoid arrears; set up arrears
clearance plan.
External Risks1
Sharp tightening of global H H. Higher debt service on Implement fiscal consolidation
financial conditions. external debt and higher measures notably increasing
refinancing costs and risks. Loss domestic revenue, cutting
of reserves, pressure on the unproductive spending and
kwacha. Worsening debt prioritizing capital spending.
position. Rebuild fiscal and external
buffers.
Weaker-than-expected M/H H. Reduced demand for Accelerate reforms enhancing
global growth: Zambia’s exports notably export competitiveness and
copper leading to widening diversify the economy to build
China: Intensification of M trade deficit, loss of foreign resilience against external
trade tensions and/or reserves and increased pressure shocks; enhance regional
housing market downturn on the kwacha; Negative impact integration including through
leading to slowdown not on debt sustainability. existing SADC and future
fully offset by policy easing; AfCFTA protocols; Maintain
Delayed deleveraging in exchange rate flexibility.
the near term causing Implement fiscal adjustment to
capital outflows and rebuild fiscal and external
exchange rate pressures; buffers.
insufficient progress in
rebalancing growth and in
deleveraging in the
medium term.
EU: Disorderly Brexit H

causing market disruption
and negative spillovers;
Weak foreign demand
causing delayed investment
coupled with low
confidence and
1
Based on the February 2019 update of the Global Risk Assessment Matrix.

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consumption; Lack of
discipline regarding
common fiscal rules and
high sovereign yields for
high debt countries leading
to bleaker medium-term
prospects.
Rising protectionism and H H. Reduced demand for Accelerate reforms enhancing

retreat from multilateralism; Zambia’s exports notably export competitiveness and
escalating trade tensions. copper leading to widening diversify the economy to build
trade deficit, loss of foreign resilience against external
reserves and increased pressure shocks; maintain exchange rate
on the kwacha; negative impact flexibility. Implement fiscal
on debt sustainability. consolidation to rebuild buffers.
Volatility in global copper M H. Lower export earnings and Accelerate reforms to diversify
prices. increased pressure on the the economy to build resilience
exchange rate. against external shocks;
maintain exchange rate
flexibility.
Spillovers of the regional H H. A deterioration of the Prepare contingency plans for
security situation. security situation in neighboring refugee influx in coordination
countries would result in inflow with UNHCR and other
of displaced humanitarian agencies.
population/refugees and higher
security and humanitarian costs.

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Annex IV. Macro-Financial Linkages

High levels of domestic arrears and government financing needs are crowding out credit to the
private sector and contributing to an elevated level of NPLs. Direct and indirect exposure from the
sovereign to the financial sector is high. While the financial sector so far remains resilient, a
significant deterioration in macroeconomic outlook or continuous increase in sovereign stress
could negatively impact financial stability and trigger a shock to the economy.
Financial Sector Overview
1. Zambia’s financial sector is relatively underdeveloped and mainly dominated by

commercial banks and the state-run pension fund (NAPSA). The 18 registered commercial banks
account for about 70 percent of total financial sector assets; the majority are foreign-owned. The
non-bank financial institutions (NBFIs) sector is dominated by government-run National Pension
Scheme Authority (NAPSA) which accounts for around 75 percent of NBFI assets. NAPSA was
established in 2000 and has a growing pool of assets (around 30 billion Kwacha at end-2018),
playing an important role in the domestic government securities market and investment activities.
Other NBFIs are the 35 MFIs, 80 bureaux de change and some building societies, leasing companies
and development finance institutions.
Zambia: Financial Sector Structure (end-2018)
Source: Bank of Zambia and IMF staff estimations.
2. MFIs play a vital role in financial inclusion. In contrast to commercial banks, which
invest in government securities or foreign assets, MFIs are mainly focused on domestic payroll-
based lending activity. Although small by value, they provide a large number of credit
arrangements.

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Asset Decomposition of Commercial Banks and NBFIs
Source: Bank of Zambia and IMF staff estimates.
3. Credit to the private sector remains low compared to the South African
Development Community (SADC) countries and mainly concentrated in personal loans
and the agricultural sector. Zambia witnessed intensified pressures on private sector credit
growth during the 2015–16 crisis owing to slower GDP growth, sharply lower copper prices,
electricity shortages, tight monetary policy and mounting fiscal arrears. Private sector credit
declined from 15¾ percent of GDP in 2015 to around 11½ percent in 2018 and remains
considerably lower than the average of SADC countries. High and growing domestic arrears to
suppliers, elevated levels of NPLs, and rising lending rates are contributing to subdued private
sector lending activity.
4. Although individual financial inclusion has expanded in recent years, access to

finance for SMEs has worsened. Zambia has made significant progress in improving both
access and usage of formal and informal financial services since 2010, but still lags its peers:
59 percent of adults make use of financial services (formal or informal), while around 38 percent
of adults have a formal transaction account1. There are significant disparities in financial
inclusion between rural and urban areas, men and women, youth and adults, and between SMEs
and large firms. Financing for SMEs remains extremely challenging: a high share of SMEs face
loan rejections, and where credit is available, nominal lending rates are significantly higher than
for the larger firms. Given these constrains, access to loans by firms in Zambia remains one of
the lowest amongst SADC countries.
1
Source: Zambia’s National Financial Inclusion Strategy 2017-22. These levels are below peer SSA countries such as
Botswana, Kenya, Namibia, South Africa, Tanzania, Uganda, Zimbabwe,

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Access to Credit in Zambia versus SADC Countries
Credit to Private Sector, SADC Access to Loans by Firms

(Percent of GDP) (Percent of SMEs)
Source: IFS, World Bank Enterprise Survey and IMF staff calculation
Financial Sector Stability
5. Financial conditions and performance of the banking sector remains broadly

resilient, but stress is emerging. Although capital adequacy ratios have decreased since last
year, they remain well above the minimum prudential requirement of 5 percent and 10 percent
for the primary and total regulatory capital respectively and remain adequate to absorb
unexpected losses. Earning performance has been improving and level of non-performing loans
(NPLs) has been gradually declining since early-2018, although NPLs remain sticky around the
10% prudential benchmark. Liquidity in the banking sector remains satisfactory, but the high
share of placements abroad poses risks. On average, placements abroad constitute about half of
the total liquid assets of commercial banks. The significant placements abroad are partly due to
the substantial amount of foreign currency denominated deposit liabilities which are not entirely
invested in foreign-currency loans in the Zambian economy due to limited capacity of the
market. The 2017 FSAP report highlighted that, particularly in an event of a liquidity crisis, these
balances may not be readily available. Excluding these assets from the calculation of liquid
assets, liquidity ratios would be an adjusted 28.2 percent and an adjusted 23.2 percent for assets
and deposits respectively, remaining close to the prudential benchmark of 25 percent.
6. Commercial banks’ exposure to foreign exchange risks arising from adverse

foreign exchange movements remains moderate. The share of foreign currency denominated
loans in banks’ total domestic loans stood at around 45 percent at end-2018. To reduce risks,
most banks only extend FX loans to borrowers with FX cash flows, and a large share of these
foreign currency denominated loans is to the agricultural and mining sectors. In case of a large
exchange rate shock, defaults for these FX denominated loans could increase and capital ratios
may decline.
7. Non-bank financial institutions remain most vulnerable, with low asset quality.
Although regulatory capital and earning performance remains adequate and well above the
minimum threshold, both ratios decreased in 2018. Notwithstanding the loss absorption buffer
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provided by their capital, vulnerabilities remain high due to high level of NPLs (17 percent of
total loans at end-Feb 2019). Furthermore, 14 institutions, accounting for about 25 percent of
NBFIs assets (excluding NAPSA), have NPL ratio above 20 percent.
Zambia: Financial Soundness Indicators
(Percent, unless otherwise indicated)
Banks NBFIs (ex. NAPSA)

Jan-
Jan-18 Feb-19
18 Mar-19
Capital adequacy
Regulatory capital to risk-weighted assets 26.2 21.6 39.3 30.3
Tier 1 regulatory capital to risk-weighted assets 24.3 19.6 28.3 21.8
Capital to total assets 12.5 12.4 24.4 21.5
Asset quality
Past due advances (NPL) to total advances 12.7 9.9 19.5 16.8
Loan loss provisions to nonperforming loans 76.1 83.8 78.0 80.9
Earnings and profitability

Return on average assets 0.9 2.9 13.2 9.9
Return on equity 4.8 14.8 53.9 45.7
Liquidity1
Liquid assets to total assets 45.0 42.4 14.4 13.7
Liquid assets to total deposits 61.1 52.6 24.5 23.1
Advances to deposits ratio 45.1 50.2
Exposure to foreign currency

Foreign currency loans to total gross loans 40.6 47.0
Foreign currency liabilities to total liabilities 43.4 48.0
Net open position in foreign exchange to capital 1.9 1.6

1 Part of the decline in liquidity ratio was due to Kwacha depreciation.

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Macro-Financial Linkages and Sovereign-Financial Nexus
8. The sovereign-financial nexus remains prominent and could be a source of fragility.

The figure presents key macro-financial linkages in Zambia. Direct exposure of commercial
banks and NAPSA to the sovereign is mainly via their investment in government securities which
helps to meet the government’s domestic financing needs (colored in red below). Indirect
exposures of the banks, MFIs and NAPSA are through their role as lenders to suppliers and
households, as the pension fund manager, and through their relationships with one another.
Civil servants’ pension contributions and salary-backed loan repayments are deducted by the
government from wages and remitted to the respective institutions.
Sovereign-Financial Nexus: Intensifying Links
9. Direct sovereign exposures of the financial sector to the sovereign increased

significantly in 2017–18. With the easing of the monetary policy stance starting in late 2016,
already-high NPLs, and lack of attractive risk opportunities, commercial banks invested heavily in
high-yielding government securities. Commercial banks’ total holdings of government securities
increased to around 25 percent of assets in 2018 but have been declining more recently.2 Most
of these holdings by the commercial banks are of shorter maturity instruments (T-bill) yielding
an annual real yield of around 10-15 percent and improving commercial banks’ profitability. The
NBFIs, particularly NAPSA, hold longer maturity government bonds (Figure 4b). While static
2
There are not established guidelines on the level of sovereign exposure appropriate in low-income countries, which
will be a function of investment opportunities and the balance of risk and reward. In emerging markets, the average
range of direct exposure is around 15-21 percent. See Dell’Ariccia (2018), “Managing the Sovereign-Bank Nexus”, IMF
Departmental Paper No. 18/16

ZAMBIA
analysis indicates financial institutions have scope to further increase holdings of government
debt, this would leave the financial sector vulnerable to episodes of sovereign stress.
Commercial Banks Exposure and Trend in Government Bond Holdings
Commercial Banks Exposure to Government Securities Government Bond Holdings

Commercial Banks Exposure to Government Securities
(% of
(% total assets)
of total assets) (in billion Kwacha)
32
30
28
26
Percent of total assets
24
22
20
18
16
14
12
10
1-Jul-08
1-Jul-09
1-Jul-10
1-Jul-11
1-Jul-12
1-Jul-13
1-Jul-15
1-Jul-16
1-Jul-17
1-Jul-18
1-Jul-07
1-Jul-14
1-Jan-07
1-Jan-08
1-Jan-09
1-Jan-10
1-Jan-11
1-Jan-12
1-Jan-13
1-Jan-14
1-Jan-15
1-Jan-16
1-Jan-17
1-Jan-18
Source: Bank of Zambia and IMF staff estimate
Source: Bank of Zambia and IMF staff estimate
10. Pressures from indirect exposure have increased significantly in recent months. As
domestic financing conditions have tightened, government domestic arrears to suppliers have
risen, reaching around 6 percent of GDP at end-2018. This is contributing to keeping NPLs
elevated. Recently the government was also delayed in remitting some civil servants’ pension
contributions and repayment of salary-backed loans to various financial institutions.3 If payment
of salary-backed loans is delayed significantly, they could be classified as non-performing loans,
with a negative impact on micro-financial institutions, which are already under pressure. This
might also negatively impact the borrowers’ ability to secure future credit arrangements.
11. Both direct and indirect sovereign-financial linkages are holding back real sector
activity. High government borrowing needs are driving higher yields on government securities,
which are often used by commercial banks to benchmark their private sector lending rates.
Private sector credit is also being held back by concerns about the outlook as banks prefer to
maintain liquidity given macroeconomic vulnerabilities. NAPSA’s investments and its deposits in
the banking sector have also been impacted by the governments’ financing needs and delays in
remitting pension contributions. Finally, difficulties at several micro-financial institutions pose
challenges to the authorities’ objective of increasing financial inclusion.
12. These exposures increase the potential of a spillover of sovereign stress to the
financial sector. Banks’ core function of supporting credit to the private sector is being
constrained. In a shallow financial market, deepening sovereign-financial linkages can also
amplify risks when liquidity conditions tighten.
3
Data on exact amount and nature of delays is under review by the MoF.

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Addressing Vulnerabilities
13. The 2017 FSAP highlighted the need to update and strengthen the crisis
management framework. The BoZ has proposed the creation of the Interagency Financial
Stability Committee (IAFSC), which would be a platform for coordination between the BoZ, MoF,
PIA, and SEC on crisis preparedness and management. The IAFSC would address both
macroprudential policy and crisis management.
14. Fiscal and external imbalances constrain the capacity to manage a systemic crisis.
This puts a premium on crisis prevention, and readiness, to ensure any emerging problems are
tackled early and minimize the impact on financial stability. In this regard, fragilities related to
the deepening sovereign-financial nexus bear close monitoring.

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Annex V. Mining Sector

Mining is a key sector of
Mining: Share in GDP and Electricity Consumption
the economy. It is the most
important source of foreign
exchange, generating almost 70
percent of total export receipts; it
contributes an average of 11
percent of GDP—making it the
third largest sector after wholesale
and retail trade and public services;
and (considering direct and indirect
effects) it accounts for almost 10
percent of total formal
employment and about 25 percent Sources: Energy Regulation Board, Zambian authorities, and IMF staff estimates.
of total private sector employment.
The sector can be a source––or amplifier––of supply shocks. Mining production relies
heavily on the availability of electricity—mining activities account for about half of electricity
consumption—and thus is exposed to weather-related shocks since hydropower accounts for more
than 80 percent of Zambia’s electricity generation. Mining production’s vulnerability vis-à-vis climate
shocks was highlighted in 2015 when a severe drought caused a 7 percent drop in power generation,
contributing to a 17 percent decline in copper and cobalt production. While power generation has
been bolstered in recent years, the current drought represents a risk to mining operations. A further
fall in international copper prices due in part to trade wars and the relative slowdown in China (one
of the world’s largest consumers of copper), would be another source of risk to the outlook.
Over time, the sector’s direct

contribution to budget revenues has Mining Sector Contribution to Government
increased with changes in the fiscal Revenue
regime. Mining’s contribution to domestic (Percent of GDP)
revenue has historically been low as the
sector has benefited from various
exemptions since being privatized in the
1990s and mining companies reported low
or no profits, partly owing to significant
capital investments. In the early 2000s the
sector contributed less than 0.1 percent of
GDP to domestic revenue, although that
Sources: Zambian authorities and IMF staff estimates.

ZAMBIA
contribution increased to about 2 percent of GDP in recent years with changes in the fiscal regime.1
The 2019 budget introduced policy changes aiming Norm Price Range Royalty rates (percent)
Previous New
at further increasing the mining sector’s contribution to
budget revenues. Mineral royalty rates on copper were Less than US$4,500 4.0 5.5
increased by 1.5 percentage points and the royalty rate on US$4,500 but less than US$6,000 5.0 6.5
US$6,000 but less than US$7,500 6.0 7.5
cobalt to 8 percent from 5 percent. Mineral royalties were also US$7,500 and above N/A 10
made non-deductible for income tax purposes. An import
duty of 5 percent on copper and cobalt concentrates imports was levied to discourage processing
of imported concentrates in favor of domestic ones. A 15 percent export duty on precious metals
was also introduced. The budget also announced the intention to introduce a nonrefundable sales
tax in lieu of the VAT. Focus has also been stepped up on enhancing compliance, and audits of
mining sector operations were initiated in December 2018. Legal action was initiated against one
firm in May.
1
See International Monetary Fund (2015). Analysis of Change in Zambia’s Mining Fiscal Regime. Zambia Selected
Issues

ZAMBIA
Annex VI. Institutions and Governance

Strong institutions that promote good governance and low corruption are key drivers
of potential and inclusive growth. These factors affect growth dynamics by enhancing macro-
financial stability, helping in improving public investment efficiency and human capital accumulation,
and increasing total factor productivity. The main channel through which governance and corruption
impact the economy reflects key state functions such as the execution of budgetary policy, public
financial management, tax collection, market regulation, financial sector oversight, and public order
and enforcement.
Corruption-Growth Nexus
Source: IMF, 2017
Potential growth and inclusiveness are hindered in Zambia by tax evasion, weak
governance and corruption. Current Worldwide Governance Indicators (WGI)1 and Transparency
International indicators for Zambia are close to the SSA average, but this represents a notable
deterioration in governance and institutional quality in recent years. Zambia had seen a significant
improvement in Worldwide Governance Indicators (WGIs) in the 2000s but has faced challenges in
recent years, with indicators especially of governance effectiveness, control of corruption declining
significantly since 2012. Similarly, Transparency International’s Corruption Perception Index (CPI)2
1
WGIs are third-party indicators which summarize views of many enterprises, citizens and expert survey respondents
on the quality of governance in a country. The data are gathered from survey institutes, think tanks, non-
governmental organizations, international organizations, and private sector firms. The index ranges between -2.5 to
2.5, with higher values representing more favorable governance. Note that given the confidence interval, uncertainties
exist around Zambia’s point estimate. The WGI scores are normalized each year to mean zero and hence measure
relative performance.
2 CPI is a third-party indicator published annually by the Transparency International ranging between 0 (highest level
of perceived corruption) to 100 (lowest level). It is a combination of opinion surveys and expert assessments of
corruption, collected by twelve institutions. The CPI does not tell the full story of corruption in a country, only the
level of corruption in the public sector within the past two years. Confidence interval for the 2018 score was between
32 and 38, with standard error of 1.93.

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shows a deterioration since 2014-15. This is against a trend of improving averages for Sub-Saharan
African economies, albeit from relatively lower levels.
Governance Indicators and Corruption Perception Index
Governance Indicators Corruption Perception Index

(Percentage change between 2013 and 20171)
Sources: Worldwide Governance Indicators, Transparency International and Doing Business Database.
1
An increase means an improvement of the indicator a decrease a deterioration.
Zambia has established a national agency, the Financial Intelligence Center (FIC), whose
mandate includes informing the public of complaints related to corruption and tax evasion
and disseminating financial intelligence to law enforcement agencies. The FIC was established in
2010 following enactment of the Financial Intelligence Centre Act, No. 46 of 2010 and became
operational in November 2013. The FIC is the sole designated government agency responsible for
the receipt, analysis and dissemination of suspicious transaction reports to various Law Enforcement
Agencies (LEAs) (e.g., Anti-Corruption Commission, Zambia Revenue Authority). The FIC has reported
a significant increase in the total number of suspicious transaction and spontaneous disclosure
reports from 719 in 2016 to 1,664 in 2017 and to 799 in 2018.3 (Table 1)
Table 1. Trend in Suspicious Transaction and Spontaneous Disclosures
Number of reports disseminated

Year Number of suspected reports
to LEAs
2014 487 -
2015 767 357
2016 719 114
2017 1664 425
2018 799 80
Source: Various FIC Trend reports.
3
Assessment period for 2018 was from 1st January 2018 to 30th September 2018.

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Most of the reports received by the FIC in 2017 and 2018 were related to suspected
corruption, tax evasion and procurement violations. In 2017, 425 reports were validated and
disseminated to various law enforcement agencies (LEAs) for further investigation and prosecution.
In 2018, 80 reports were transmitted to LEAs. Most of these reports are related to procurement
corruption occurring in government and quasi-government institutions when the private sector is
contracted for projects. The main method found for procurement corruption were direct bidding and
subsequent variation of contracted amount.
The Zambian authorities have placed the fight against corruption on the country’s
political agenda. Institutional, regulatory and legal measures have been taken to prevent and fight
corruption (including updating the Anti-Corruption Act). However, weak mechanisms of financial
control combined with ineffectiveness in public financial management mechanisms, and the limited
capacity of to regulatory bodies to provide effective oversight, have hampered the ability to
investigate and bring cases to trial.
The authorities are digitalizing customs processes and undertaking initiatives to

advance border coordination and trade facilitation. In tax administration, progress includes
increased uptake of electronic filing and payments methods, strengthened practices to manage tax
arrears owed by corporations and individuals, and improvements to the dispute resolution process.
However, more effort is required to: address the accuracy of the taxpayer registration database,
ledgers and customs data; boost on-time filing across all core tax types; develop a strategy to
address low rate of compliance across all taxes and obligations; and improve monitoring and
reporting of performance against desired outcomes. Recent approval of the Public Financial
Management Act provides a basis for further actions to strengthen the procurement process.

ZAMBIA
Annex VII. Capacity Development Strategy Note

CD Strategy
Fiscal consolidation to reduce debt-related vulnerabilities and preserve macroeconomic
stability is the key policy priority. The IMF’s CD strategy for Zambia is therefore anchored on
assisting the authorities to achieve orderly and adequate fiscal adjustment through providing
detailed technical policy advice and enhancing institutional capacity to implement needed reforms.
CD on budget preparation and execution and debt management supports these goals. In addition,
the last FSAP (2017) highlighted risks to financial stability due to insufficient capacity for bank
supervision, systemic risk analysis and financial crisis management, and Fund CD has also focused on
strengthening the Bank of Zambia (BOZ)’s capacity in those areas. Finally, capacity building continues
to be provided in the areas of compilation and timely dissemination of economic statistics.
Key Overall CD Priorities Going Forward
Priorities Objectives
Tax policy and revenue Enhance domestic revenue mobilization as part of fiscal consolidation.
administration. Focus on widening tax base notably for income and consumption
taxes and strengthening compliance.
Public finance management. (PFM) Enhance the budget preparation process; strengthen budget
execution and control with the aim to avoid accumulation of payment
arrears; strengthen identification and management of fiscal risks;
improve public investment system to ensure better alignment of
public investment projects with national priorities; strengthen public
debt management.
Monetary policy implementation Strengthen monetary policy implementation to facilitate transition
and operations. towards a modern inflation targeting framework. Promote a well-
functioning foreign exchange market. Upgrade BOZ’s legal framework.
Strengthen macroeconomic and Improve the quality and coverage of national accounts, external sector
financial statistics compilation and statistics, and government finance statistics. Support the compilation
dissemination for decision making. of producer and import price indices.
Main Risks and Mitigation

Poor coordination between government agencies and inadequate staffing continue to
constitute important risks to the implementation of TA recommendations. These risks could be
mitigated by ensuring broader engagement and interaction with TA missions at the level of
implementing agencies, proper sequencing of TA and training delivery, and longer term TA
engagement notably through longer term/resident experts. Communication with various
groups/stakeholders is also key to secure the proper buy-in.
Authorities’ views
The authorities are in broad agreement with the overall assessment, strategy and priorities.

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STAFF REPORT FOR THE 2019 ARTICLE IV
July 11, 2019 CONSULTATION—INFORMATIONAL ANNEX
Prepared By African Department

(In consultation with other departments)
CONTENTS
FUND RELATIONS ____________________________________________________________________ 2
JOINT WORLD BANK-FUND WORK PROGRAM, 2019–20 _________________________ 10
STATISTICAL ISSUES ________________________________________________________________ 12

ZAMBIA
FUND RELATIONS
(As of May 31, 2019)
Membership Status: Joined: September 23, 1965; Article VIII

General Resources Account:
SDR Million Percent Quota
Quota 978.20 100.0
Fund holdings of currency 978.20 100.0
Reserve position in Fund 0.02 0.0
SDR Department
SDR Million Percent Allocation
Net cumulative allocation 469.14 100.0
Holdings 158.09 33.70
Outstanding Purchases and Loans

SDR Million Percent Quota
ECF arrangements 32.28 3.30
Latest Financial Arrangements

Type Approval Date Expiration Date Amount Approved Amount Drawn
(SDR Million) (SDR Million)
ECF 1 06/04/2008 06/29/2011 220.10 220.10
ECF 1 06/16/2004 09/30/2007 220.10 220.10
ECF 1 03/25/1999 03/28/2003 278.90 237.52
Projected Payments to the Fund2

(SDR million; based on existing use of resources and present holdings of SDRs)
Forthcoming
2019 2020 2021 2022 2023
Principal 19.40 11.04 1.84

Charges/interest 1.74 3.46 3.46 3.46 3.46
Total 21.14 14.50 5.30 3.46 3.46
1 Formerly PRGF.
2
When a member has overdue financial obligations outstanding form more than three months, the amount of such
arrears will be shown in this section.

ZAMBIA
Implementation of HIPC Initiative

Enhanced
Framework
Commitment of HIPC assistance
Decision point date Dec. 2000
Assistance committed (1999 NPV terms)3
By all creditors (US$ million) 2,499.20
Of which: Fund assistance (US$ million) 602.00
(SDR equivalent in millions) 468.80
Completion point date April 2005
Disbursement of IMF assistance (SDR million)

Assistance disbursed to Zambia 468.80
Interim assistance 351.60
Completion point balance 117.20
Additional disbursements of interest income4 39.47
Total Disbursement 508.27
Implementation of MDRI Assistance

I. Total debt relief (SDR million)5 402.59
Of which: MDRI 398.47
HIPC 4.12
II. Debt relief by facility (SDR million)
Delivery date GRA PRGT Total
January 2006 n/a 402.59 402.59
Safeguard Assessments
3 Net present value (NPV) terms at the decision point under the enhanced framework.
4 Under the enhanced framework, an additional disbursement is made at the completion point corresponding
to interest income earned on the amount committed at the decision point but not disbursed during the interim
period.
5The Multilateral Debt Relief Initiative (MDRI) provides 100 percent debt relief to eligible member countries that
are qualified for assistance. The debt relief covers all debt owed to the Fund as of end-2004 that is outstanding
at the time the member qualifies for the relief.

ZAMBIA
Safeguards assessments of the Bank of Zambia (BoZ) were completed in June 2004, January 2009,
and October 2010. The 2009 assessment concluded that the bank had adequate safeguards
in several areas, but confirmed the existence of certain vulnerabilities in the BoZ’s legal framework
and financial reporting. The 2010 update report concluded that the BoZ had made progress
in implementing safeguards recommendations. Staff noted improvements in the internal audit
and internal control mechanisms. Weak statutory independence remains a substantive safeguards
concern.
Exchange Rate Arrangement
The currency of Zambia is the kwacha. The exchange rate arrangement is a “float,” with the kwacha
exchange rate determined in the interbank market. The buying rate of the BoZ is a simple average
of the primary dealers’ low bid rates, and the BoZ’s selling rate is the simple average of the primary
dealers’ high offer rates. On April 19, 2002, Zambia accepted the obligations of Article VIII, Sections
2, 3, and 4 of the Articles of Agreement.
Zambia continues to maintain an exchange restriction, which is subject to Fund approval under
Article VIII, arising from limitations imposed by the government on access to foreign exchange for
the making of payments and transfers for current international transactions, which is evidenced by
the existence of external payments arrears accumulated prior to October 4, 1985.
Article IV Consultations
Zambia is on the standard 12-month Article IV consultation cycle, subject to

Decision No. 14747– (10/96), as amended. The Executive Board concluded the last Article IV
consultation on October 6, 2017.
FSAP Participation and ROSC
Zambia has participated in the financial sector assessment program (FSAP); an FSAP mission from
the Fund and the World Bank conducted a comprehensive external assessment of the financial
system on April 30–May 15, 2002, and July 15–26, 2002. A follow-up FSAP mission was conducted
by the Fund and the World Bank in November 2008. More recently, another joint World Bank-Fund
FSAP mission was conducted on July 11-August 3, 2016 to assess the stability of the financial
system. On June 8-16, 2017, a mission from the Fund was conducted to update the stress tests
of the 2016 FSAP.
The fiscal transparency module of a Report on Observance of Standards and Codes (ROSC)
assessing compliance with the IMF’s Code of Good Practices on Fiscal Transparency—Declaration
of Principles was issued to the Executive Board on October 31, 2001. A ROSC data module was
issued to the Executive Board on January 18, 2005.

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Technical Assistance (since 2011)

Resident advisors
Department Dates Position
FAD 2012–15 Peripatetic advisor on tax administration
MCM 2011–15 Advisor on capacity building at the Bank of

Zambia
Technical assistance missions

Department Dates Purpose
FAD February 2012 Mining tax administration
April 2012 Public financial management
October 2012 Tax administration
July 2012 Tax policy
April 2013 Pension reform
November 2013 Tax administration
November 2013 Public financial management
January 2014 Cash management
February 2014 Program based budgeting
May 2014 Mining and large taxpayer administration

reforms
July–August 2014 Cash basis financial reporting
October–November 2014 Treasury single account
March 2015 Mining Tax administration
April–May 2015 PFM legislation
January–February 2016 Macro-fiscal management and budget

formulation
April 2016 Customs administration
May 2016 Assessment of Tax administration (TADAT)
May–July 2016 Review of the Performance Budget System
June 2016 Macro-fiscal planning and fiscal risks

management
July 2016 Tax administration
July–August 2016 Audit effectiveness for Telecoms

ZAMBIA
Nov.–Dec. 2016 Customs administration
February 2017 Public Investment Management assessment
April 2017 Tax administration
January 2018 Tax and Customs Administration
January 2018 Fiscal risk assessment, cash management and

expenditure controls, and fiscal reporting
June 2018 Tax system assessment and revenue

mobilization
September 2018 Strengthening cash and debt management
Oct.–Nov. 2018 Managing cash and strengthening budget

process
April 2019 Wage bill management
MCM November 2011 Monetary policy framework
January 2012 Inflation targeting framework
January 2012 Payments system reforms
January 2012 Central Bank organizational restructuring
February 2012 Currency management
March 2012 Macro modeling of transmission mechanism
May 2012 Stress testing and risk profile of banks
May 2012 Currency management
July 2012 Payments system
September 2012 Currency management
October 2012 Inflation targeting
November 2012 Organization review
November 2012 Financial stability
December 2012 Bank supervision and regulations
February 2013 Information handling
March 2013 Organization of economic analysis
March 2013 Macro modeling of transmission mechanism
May 2013 Payments system

ZAMBIA
June 2013 Markets for government securities
August 2013 Financial stability analysis
September 2013 Liquidity forecasting and interbank market
November 2013 Monetary policy reports and recommendations
November 2013 Tasks and performance of the executives
February 2014 Internal planning functions of BOZ
February 2014 Automation of book-keeping and accounting in

currency operations
March–April 2014 Stress testing
April–May 2014 Econometric modeling
May 2014 Improving efficiency of payment system
July 2014 Assessing the functioning of the FX market
August 2014 Project Management
September 2014 Monetary policy formulation and

implementation
September–October Improving efficiency of payment systems-

2014 National Switch project
November 2014 Enhancement of the stress testing framework
January 2015 Improving liquidity of the secondary market for

Government securities and deepening interbank
money markets
February 2015 Bank supervision
March 2015 Organizational structure and operational set up
June 2015 Payment systems development and oversight
August 2015 Bank supervision
September 2015 Macroeconomic modelling
September–October Establishment of a centralized database

2015 management system
October 2015 Bank of Zambia organizational structure
November 2015 Secondary market for Government securities
February–March 2016 Secondary market for Government securities

ZAMBIA
April 2016 Business opinion and expectations survey
April 2016 Stress testing
July 2016 Forecasting and policy analysis system
December 2016 Forecasting and policy analysis system
April 2017 Forecasting and policy analysis system
May 2017 TA needs assessment
June 2017 Risk based supervision
July 2017 Deposit insurance system
July 2017 Monetary policy communications

Aug.-Sept. 2017 Foreign exchange market developments
October 2017 Central Bank communication
October 2017 Risk based supervision
December 2017 FPAS modeling
April 2018 Systemic risk monitoring
May 2018 Contingency planning for crisis preparedness

and management
June 2018 FPAS modeling
June 2018 Diagnostic and PFMI training
October 2018 FPAS modeling
Oct-Nov 2018 Cyber security
Jan 2019 Communications
April 2019 Stress testing
STA February 2013 SRF data development
April 2013 Price statistics
April 2013 National accounts
December 2013 Price statistics
January 2014 National accounts
January 2014 Open data platform
April-May 2014 Monetary and financial statistics
August 2014 National accounts
March 2015 Quarterly National accounts

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March 2015 Price statistics
February–March 2016 External sector statistics
March 2016 National accounts statistics
March–April 2016 Government finance statistics
April 2016 Enhanced general data dissemination system
April–May 2016 National accounts statistics
May 2016 Natural resources revenue pilot study
October 2016 National accounts statistics
December 2016 External sector statistics
February 2017 National accounts statistics
March 2017 International investment position and External

debt and statistics compilation training
March 2017 Producer price index
June 2017 National accounts statistics

June 2017 External sector statistics
August 2017 National accounts statistics
November-December Government finance statistics
2017
December 2017 Producer price index
April 2018 Producer price index
April-May 2018 External sector statistics and International
investment position
June 2018 National accounts statistics
November 2018 National accounts statistics
November-December Government finance statistics
2018
February 2019 Public sector debt statistics
March 2019 External sector statistics
April 2019 National accounts statistics

ZAMBIA
JOINT WORLD BANK-FUND WORK PROGRAM, 2019–20
Title Products Expected

Delivery Date
World Bank work 1. Analytical work – Renewable energy; Fostering long-term 2019-20
program in next savings;
12 months
2. Lending – Country Partnership Framework TBD
3. Analytical work – Insolvency and secured transactions reforms September 2019

to promote MSME access to credit and financial inclusion
4. Analytical work – Water supply and sanitation sector November 2019

diagnostic
5. Analytical work – Digital economy diagnostic November 2019
6. TA – Financial inclusion support program December 2019
7. TA – Capacity building for the Ministry of National May 2020

Development Planning
8. Analytical work – Debt management reform plan Continuous
9. Analytical work – Poverty monitoring and analysis May 2020
June 2020
10. TA – Transport sector PPP
IMF work 1. Technical assistance: Foreign operations and foreign exchange 2019/20
program in next policy implementation
12 months
2. Technical assistance: Public financial management 2019/20
3. Technical assistance: Revenue administration 2019/20
4. Technical assistance: Contingency planning for crisis 2019/20

preparedness and management
5. Technical assistance: Financial supervision and regulation 2019/20
6. Technical assistance: Monetary policy implementation and 2019/20

operations

ZAMBIA
7. Technical assistance: National accounts statistics 2019/20
8. Technical assistance: External sector statistics 2019/20
9. Technical assistance: Producer price index 2019/20
10. Technical assistance: Government finance statistics 2019/20
Fund request to 1. Analytical work on impact of drought and other climatic shocks June 2019
Bank
2. Analytical work on electricity tariffs review September 2019
3. Analytical work on debt management reform July 2019
4. Assessment of progress in strengthening project appraisal, End-2019

selection and management as well as public procurement
processes.
Bank request to 1. Medium-term macroeconomic framework Continuous

Fund
Joint products 2. DSA for Article IV July 2019
in next
12 months

ZAMBIA
STATISTICAL ISSUES
As of June 20, 2019
I. Assessment of Data Adequacy for Surveillance
General: Data provision has some shortcomings but is broadly adequate for surveillance. Issues with
source data and compilation affect most datasets but are particularly problematic in fiscal reporting.
National accounts: The Central Statistics Office (CSO) estimates GDP for the current year from benchmark
year 2010 and a combination of survey and administrative data. The authorities now compile GDP
estimates using value added (VAT) and business income tax data from the Zambian Revenue Authority
(ZRA). In October 2016, the CSO started publishing quarterly GDP estimates using quarterly source data,
including fiscal records from the ZRA. The two priority areas for attention are: (a) developing a
Memorandum of Understanding between the CSO and the ZRA to ensure administrative data has
appropriate coverage and quality assurance; and (b) developing a new GDP benchmark within the next
three years. AFRITAC South is providing a technical assistance over the ongoing GDP rebasing process.
Price statistics: The classification system used for compilation of the CPI closely follows the Classification
of Individual Consumption by Purpose. The current weights are based on expenditure data reported
by households in 2002. There is urgent need for a household expenditure survey to update the CPI
weights. An ongoing AFRITAC South project on the compilation of the producer price index (PPI)
is expected to enhance the measurement of volume changes of GDP and its components.
Government finance statistics (GFS): The coverage of GFS data is limited to budgetary central
government. These data include intergovernmental transfers of about 2 percent of GDP to extra-
budgetary, social security, and local government units—the economic nature of these expenses are not
known and all sources of own revenue of these entities are excluded from the fiscal data. The authorities
report monthly budget releases data to the IMF’s African Department for operational use in a timely
manner, but the data are often subject to substantial revisions. The reconciliation of data on fiscal outturn
in fiscal reports and government’s accounts in monetary statistics requires significant improvement. There
is a GFS TA mission planned for November 2019.
Monetary statistics: The Bank of Zambia (BOZ) reports monetary data to STA for the central bank and
other depository corporations on a timely basis. Data for Other Financial Corporations are reported with
long delays. Monetary statistics are reported using the standardized report forms, which accord with the
concepts and definitions of the IMF’s Monetary and Financial Statistics Manual (MFSM). BOZ also reports
data on some basic series and indicators of IMF’s Financial Access Survey including mobile money and the
two indicators adopted by the UN to monitor Target 8.10 of the Sustainable Development Goals
(commercial bank branches 100,000 adults and ATMs per 100,000 adults).

ZAMBIA
Financial sector surveillance: BoZ submits the FSIs for deposit takers on a regular and timely basis which
are disseminated on the IMF’s FSI website.
Balance of payments statistics: The data adequacy has gradually improved in recent years. The BoZ
compiles balance of payments (BOP) and international investment position (IIP) statistics according to the
Sixth edition of Balance of Payments and International Investment Position Manual (BPM6). BOP and IIP
data are compiled quarterly although the publication time lag is higher than 120 days of the reference
quarter. The BoZ has started conducting new services surveys in compliance with BPM6 which have
contributed to the significant revision in the services series as well as the fob valuation of exports and
imports of goods. The coverage of the quarterly investment survey (relating to financial account and
primary income) should be improved as well is its incorporation in the BOP statistics.
External and domestic debt statistics: Data provision is broadly adequate for surveillance purposes.
Recent efforts, facilitated by technical assistance, have led to an improvement in the consolidation of the
debt databases, both in terms of external and domestic debt. Further work is underway in these areas.
II. Data Standards and Quality
Zambia has participated in the General Data Dissemination System (GDDS) since November 2002, and in
June 2016 it implemented the e-GDDS recommendations and disseminated a National Summary Data
Page (NSDP; http://nso.zambia.opendataforafrica.org/ddaiaof/national-summary-data-page-nsdp),
publishing 14 of the 15 e-GDDS data categories and remaining in Baseline 2 of the e-GDDS. Since June
2016, updating of the NSDP has not been consistent. A Data ROSC Assessment was published in
February 2005.

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Zambia: Table of Common Indicators Required for Surveillance

As of June 20, 2019
Date of Date Frequency Frequency Frequency of Publication7

Latest Received of of
Observation Data7 Reporting
7
Exchange rates June 20 June 20, D D D

2019 2019
International reserve assets June 6 2019 June 14, D W M
and reserve liabilities of the 2019
monetary authorities1
Reserve/base money June 7 2019 June 14 D W M
2019
Broad money June 7, 2019 June 14, M M M
2019
Central bank balance sheet April 2019 June 2019 M M M
Consolidated balance sheet April 2019 June 2019 M M M
of the banking system
Interest rates2 June 15, June 20, W W M
2019 2019
Consumer Price Index May 2019 May 31, M M M
2019
Revenue, expenditure, N/A N/A
balance and composition of
financing3—general
government4
Revenue, expenditure, March 2019 June 14, M M M
balance and composition of 2019
financing3— central
government
Stocks of central government December April 10, M M Q
and central government– 2018 2019
guaranteed debt5
External current account Q1 2019 May 23, Q Q Q
balance 2019
Exports and imports of April 2019 May 31, M M M
goods and services 2019
GDP/GNP Q4 2018 April 16, Q Q M
2019
Gross external debt Q4 2018 April 10 A A A
2019
International investment Q3 2018 June 12, Q Q Q
position 6 2019
1
Any reserve assets that are pledged of otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked
to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency,
including those linked to a foreign currency but settled by other means.
2
Both market-based and officially determined, including discounts rates, money market rates, rates on treasury bills, notes and bonds.
3
Foreign, domestic bank, and domestic nonbank financing.
4
The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local
governments.
5
Including currency and maturity composition.
6
Includes external gross financial asset and liability positions vis-à-vis nonresidents. The publication of the new IIP series started in April 2019.
According to the Bank of Zambia, the series will be updated on a quarterly basis.
7
Daily (D), weekly (W), monthly (M), quarterly (Q), annually (A); irregular (I); or not available (NA).

ZAMBIA
STAFF REPORT FOR THE 2019 ARTICLE IV
CONSULTATION—DEBT SUSTAINABILITY ANALYSIS1
July 11, 2019
Approved By The Debt Sustainability Analysis (DSA) was prepared

David Robinson (AFR) jointly by the staffs of the International Monetary Fund
and Martin Sommer and the International Development Association, in
(IMF) and Marcello consultation with the authorities.
Estevão (IDA)
Zambia: Joint Bank-Fund Debt Sustainability Analysis

Risk of external debt distress High
Overall risk of debt distress High
Granularity in the risk rating Public debt under current policies is on an
unsustainable path
Application of judgment No
An updated DSA is prepared using the revised Low-income Countries Debt Sustainability
Framework (LIC DSF) to assess Zambia’s current debt situation. Debt burden indicators
have deteriorated considerably since the October 2017 DSA mainly on account of large
fiscal deficits as the authorities made use of available financing to boost infrastructure
spending, weaker growth and exchange rate, and a worsened external environment (terms
of trade and financial conditions). Rising debt service costs (both externally and
domestically) and a large pipeline of contracted and to-be-disbursed loans place Zambia’s
public debt on an unsustainable path under current policies while budget expenditure
arrears have risen. Zambia’s debt-carrying capacity has also weakened with its FX
reserves’ import coverage declining from 4.7 months in 2015 to 1.7 months in May 2019.
All four external debt burden indicators breach their indicative thresholds, three of them
by large margins and throughout the medium-term under the baseline scenario.
1This debt sustainability analysis was conducted using the Joint Bank-Fund Debt Sustainability Framework for
Low-Income Countries (LIC-DSF) that was approved in 2017.
ZAMBIA
Total public debt is projected to increase somewhatin the near-term as, under unchanged
policies, fiscal deficits remain large, before gradually declining as large debt-financed public
projects are completed and forced fiscal adjustment occurs given financing constraints. As a
frontier market, Zambia’s high gross financing needs (peaking at 19 percent of GDP over the next
three years), combined with wide EMBI spreads (1,575 basis points on June 11, 2019) and high
domestic borrowing costs, expose it to significant market-financing risks. Despite the challenging
fiscal situation, Zambia has remained current on all its debt obligations—domestic and
external—and has not experienced a debt distress event. The authorities remain committed to
prioritizing debt service payments and have identified resources to continue meeting debt
obligations in the near-term. However, staff assess the risk of external and overall public debt
distress for Zambia as very high at this juncture, and that a large upfront and sustained fiscal
adjustment is essential to begin reducing debt vulnerabilities.
Debt coverage
1. The public debt definition used in this DSA covers the central government direct
and guaranteed debt (including budget expenditure arrears) as well as the
nonguaranteed external debt of a fiscally important state-owned enterprise (SOE) (Text
Table 1). This is a broader debt metric than the authorities’ official debt definition which, as in
many other developing economies, covers the central government direct and guaranteed debt
including budget expenditure arrears, and stood at $18.3 billion (78.1 percent of GDP) at end-
2018. The nonguaranteed debt (including borrowings and arrears to foreign IPPs) of the
financially challenged state-owned utility company—ZESCO—is for the first time included in
the debt perimeter for DSA purposes, justified by the significant fiscal risks posed by the
company and in accordance with the LIC DSF Guidance.2 These contingent liabilities to the
central government added about US$0.7 billion (or 2⅔ percent of GDP) at end-2018. To
ensure stock-flow consistency, ZESCO’s net profit (calculated as revenue minus cost of sales
and operating expense, which was estimated by staff at roughly 1 percent of GDP in 2018 and
is assumed to remain constant in GDP terms going forward) is included as public sector
revenue for the computation of liquidity indicators.3 The authorities reported no outstanding
nonguaranteed external debt of other nonfinancial SOEs as they generally lack the capacity to
borrow externally without guarantees. Central bank external debt (including outstanding Fund
credit) is included in the debt coverage. Local governments in Zambia currently do not have
2 ZESCO and other SOEs’ guaranteed debt has always been included in DSAs and is now also part of the
authorities’ officially published debt metric. ZESCO’s contingent risks to the sovereign relate to its persistent
and large cash deficits. Several reform options are under consideration for improving ZESCO’s financial
viability (tariff increases, a cost of service study, and renegotiation of PPAs), and its inclusion in the debt
perimeter will be reassessed in future DSA updates.
3 As historical series of ZESCO’s liabilities and cash flows are not available, their inclusion (starting in 2018) in
the DSA result in a timeseries break between 2017 and 2018.

ZAMBIA
the capacity to borrow without the central government’s backstop, and their outstanding debt
(expenditure arrears) is currently captured under the central government. The debt of social
security funds is guaranteed by the central government and therefore included. The authorities
confirmed that no extrabudgetary funds currently exist with outstanding debt. Limitied data on
domestic debt of SOEs suggest the stock is insignificant and is adequately captured through
the default SOE shock (2 percent of GDP) in the contingent liability stress test. The authorities
have recently started regular collections of SOEs’ financial data in an effort to gradually
broaden the debt coverage going forward.
Text Table 1. Zambia: Stock of Public and Publicly

Guaranteed (PPG) Debt
(End-2018, billions of U.S. dollars)
Official debt DSA debt
coverage coverage
Total PPG debt 18.3 18.9
External PPG debt 11.3 12.6
1. Central government direct external debt 10.0 10.0
Multi/pluri-laterals 1.9 1.9
o.w. IMF 0.1 0.1
o.w. WB/AfDB 1.6 1.6
Bilaterals 3.0 3.0
Paris Club 0.1 0.1
Non-Paris Club 2.9 2.9
Commercial 5.1 5.1
o.w. Eurobonds 3.0 3.0
2. Central government guaranteed external debt 1.2 1.2
3. SOE external debt (nonguaranteed) Not included 0.6
4. Nonresident holdings of local currency debt Treated as domestic 0.7
Domestic PPG debt 7.0 6.3

1. Central government direct domestic debt 7.0 6.3
Treasury bills 1.548 1.544
Treasury bonds 3.3 2.7
Others 2.1 2.1
o.w. budget expenditure arrears 1.6 1.6
Memo: nonresident holdings of treasury bills 0.004 0.004

Memo: nonresident holdings of treasury bonds 0.7 0.7
Memo: total PPG debt to GDP (%) 78.1 80.8
Note: the main differences between the official and DSA debt coverages can be attributed to the
treatment of nonresident holdings of local currency government debt and nonguaranteed SOE external
debt. These items are highlighted in the table.
Public Debt Coverage and the Magnitude of the Contingent Liability Tailored Stress Test

ZAMBIA
2. The DSA is conducted on a residency basis. Pursuant to the LIC DSF Guidance Note,
foreign holdings of local currency debt issued domestically are now treated as external debt.
The stock of such holdings as of end-2018 was about US$670 million or 14 percent of total
outstanding domestic government securities.
Background
3. Increased borrowing to Text Figure 1. Creditor Landscape of Zambia’s

finance large capital expenditure has External Central Government and
led to a sharp increase in external Government Guaranteed Debt
debt and a shift in the creditor
composition (Text Figure 1). External
central government and government
guaranteed debt has tripled (relative to
GDP) during the past five years and is
estimated to have reached US$12 billion
or 51 percent of GDP by end-2018.
There has also been a noticeable shift
toward more non-concessional
borrowing.4 Non-Paris Club official
creditors hold about 29 percent of total
outstanding external PPG debt, followed
by Eurobond holders (25 percent), Sources: Zambian authorities and IMF staff estimates.
foreign banks (19 percent), and foreign
investors holding local currency debt
(6 percent). The rest is largely held by traditional multilaterals (15 percent), while plurilateral
creditors and the Paris Club together account for another 1.3 percent.5 Domestically, the debt
stock largely consists of treasury securities (21 percent of GDP) and budget expenditure arrears
on non-debt obligations (7 percent of GDP, including VAT backlogs).
4. Market-financing risks have heightened during the past 12 months. Zambia’s

Eurobonds have performed worse than most frontier markets since early-2018, with spreads
around 1,575 basis points on June 11, 2019. The widening of Eurobond spreads and pressures
on domestic interest rates have come at a time of rising gross financing needs (GFNs). Project-
4 Nonguaranteed SOE external debt is not included in Text Figure 1 due to a lack of historical data.
5The Zambian authorities are in the process of clearing some de minimis arrears recently reported to the Paris
Club by Belgium. The authorities’ were confirming de minimis sovereign arrears reported to the Paris Club by
France. There is an ongoing internal reconciliation exercise to prevent such arrears from reoccurring. In
addition, some pre-HIPC arrears to Iraq still exist but an agreement in principle has been reached and is
currently pending finalization.

ZAMBIA
related inflows meanwhile surged to 6.4 percent of GDP in 2018. The new DSF market-
financing module flags a high liquidity risk (Figure 5).
5. Refinancing risks have started to materialize in domestic debt markets. Tightening

financing conditions in the domestic debt market with frequent undersubscriptions in auctions
and structural weaknesses in PFM led to a reemergence of budget financing gaps in 2018 and
contributed to further accumulation of budget expenditure arrears.6 Private placements with
domestic institutions totalled 4.2 billlion Kwacha in 2018, of which roughly half was to the
state-run pension, NAPSA.
6. Liquidity pressures also stem from large external debt payments. External debt
service (on public and publicly guaranteed debt plus foreign-held LC debt) is projected to
reach $1.6 billion in 2019 (increased from about $1 billion in 2018), larger than the current FX
reserves level (as of May 2019). A total of $4.9 billion (principal + interest) are due to external
creditors over 2019-21, of which US$4.6 billion on already disbursed debt (Text Table 2). To
compensate anticipated external debt payments, the central bank has recently stepped up its
efforts in opportunistically purchasing FX from the market.
Text Table 2: External Debt Service by Creditor Class

(on already disbursed debt as of end 2018)
Millions of U.S. dollars 2019 2020 2021 2022 2023

Total debt service on external PPG debt 1592 1489 1525 2104 1082
Central government 1226 1170 1116 1822 822
Multi/pluri-laterals 80 66 66 72 76
Paris Club bilaterals 10 12 16 17 16
Non-Paris Club bilaterals 276 299 338 357 370
Eurobonds 237 237 237 987 197
Other commercial creditors 623 555 459 389 163
SOEs 261 215 208 190 182
o.w. guaranteed 164 152 148 133 128
Foreign holdings of LC debt 105 105 201 92 77
Sources: Zambian authorities and IMF staff calculations.
Macroeconomic and debt assumptions
7. The economic outlook on current policies has deteriorated, compared to the

October 2017 DSA (Text Table 2). Growth is lower and projected to remain subdued over the
medium-term as financing contraints force a disorderly fiscal adjustment and increasingly
6Per Zambia’s Constitution, public debt claims constitute a charge on the government’s consolidated fund and
are therefore given explicit priority over most other government spending mandates.

ZAMBIA
weigh on economic activity, and the kwacha has depreciated by 30 percent since end-2017.
Fiscal deficits have been larger than previously anticipated. However, financing constraints are
becoming increasingly binding, forcing a larger adjustment than envisaged in the 2019
budget. The current account deficit is expected to further widen due to lower copper exports
and higher imports and interest payments associated with foreign-financed public investment
before narrowing as large government projects are completed and domestic demand weakens
with slowing growth and a large forced fiscal consolidation. FDI is ebbing due to an uncertain
outlook, leaving public sector project flows and FX reserves as the predominant sources for
external financing.
8. Large external loan disbursements are envisaged by the 2019–21 MTEF

(Text Table 3). The total amount of contracted but undisbursed debt was estimated at around
US$9.7 billion (including guarantees) or 40 percent of 2018 GDP as of April 2019, which is
projected to be fully disbursed within the next 5 years (6.7 percent of GDP anticipated in 2019)
under the baseline scenario. Of that total, roughly 45 percent is understood to be for projects
that had not begun disbursing as of April 2019. New external borrowing is expected to restart
in 2022 to rollover the maturing Eurobonds and to support public sector investment.
Prospective projects under the World Bank’s recently approved Country Partnership
Framework (2019–21) for Zambia will be added to the projections as they are incorporated
into the authorities’ borrowing plans.
9. Domestic financing is expected from net issuance of government securities and

further arrears accumulation. Banks are expected to be the main buyers for bills while
pension/insurance funds are the key players in bond markets (Text Figure 2). Foreign exposure
is expected to remain flat in nominal terms absent an improvement in the outlook.7 Any
residual financing needs would be met by further accumulation of supplier arrears. No direct
central bank financing is assumed.
10. Risks to the baseline scenario (current policies) are tilted to the downside.
Government arrears on domestic payments are adding to economy-wide liquidity strains and
risk undermining financial stability through rising NPLs and deepening sovereign-financial
linkages. The realism tools (Figure 3, 4) suggest the forced adjustment envisaged under the
baseline is of a large scale. If the government instead resorted to additional accumulation of
supplier arrears, the further delay in fiscal adjustment and sharp rise in debt could drag down
investor sentiment, trigger large scale capital outflows, and further disrupt private sector
activity. There is also a risk that financing conditions could further deteriorate due to both
external and domestic factors, which could intensify already elevated liquidity pressures.
However, staff assess that the macro assumptions underpinning the baseline scenario are
7 While foreign investors have not participated in the primary market since the third quarter of 2018,
secondary market purchases have kept the total stock of LC debt held by foreign investors broadly unchanged
in kwacha terms since end-2017.

ZAMBIA
already very conservative. Upside risks stem mainly from the positive impact of a large up-
front and sustained fiscal adjustment as recommended by staff, a successful debt operation
and higher copper production and prices.
Text Table 3. Macro and Debt Assumptions

2017 2018 2019 2020 2021 2022 2023 2024-28
(Annual percentage change)
Real growth
2017 DSA 4.0 4.5 4.5 4.5 4.5 4.5 5.0 5.0
Current policies 3.5 3.7 2.0 1.7 1.7 1.6 1.5 1.5
GDP deflator
2017 DSA 7.9 8.1 8.1 7.8 8.0 7.9 7.5 5.9
(Percent of GDP)
Primary deficit (on commitment basis)
2017 DSA 2.0 2.8 2.5 1.6 1.3 0.5 -0.1 -0.1
Current policies (excl. SOE revenues) 3.0 6.1 4.1 0.4 -1.3 -2.4 -2.9 -3.7
Non-interest current account deficit
2017 DSA 1.7 1.1 -0.4 -1.7 -1.6 -1.3 1.2 1.4
Current policies 0.8 0.9 0.3 0.1 -0.6 -1.2 -1.9 -2.7
Net FDI inflows
2017 DSA 6.3 6.1 6.0 5.8 5.8 5.8 5.8 5.8
(percent)
Avg. nominal interest rate on external debt
2017 DSA 4.6 4.5 4.4 3.8 3.5 3.7 3.9 3.8
Avg. real interest rate on domestic debt
2017 DSA 2.1 3.3 3.1 3.1 3.7 3.7 4.0 5.4
Current policies -0.9 1.2 0.6 2.0 4.2 4.5 5.0 6.6
(Millions of dollars)
Project loan disbursements (incl. guarantees)
2017 DSA 1269 1675 1732 1494 1240 980 903 5567
Current policies, o.w. 873 2189 2773 2224 1740 1251 1100 6095
Central government 739 1709 1603 1716 1384 1251 1100 6095
Guarantees 134 480 1171 508 356 0 0 0
Source: IMF staff projections.
Text Figure 2. Central Government LC Debt Profile
Bill/Bond Split
60
Blns of KWA
50
40
30
20
10
0
2016 - Jul
2017 - Jul
2015 - Jul
2018 - Jul
2015 - Mar
2016 - Mar
2017 - Mar
2017 - Nov
2018 - Mar
2015 - Nov
2016 - Nov
Bills Bonds
Sources: Zambia authorities and IMF staff estimates Sources: Zambia authorities and IMF staff estimates

ZAMBIA
Debt-Carrying Capacity
11. Zambia’s debt-carrying capacity under the Composite Indicator (CI) rating is
assessed as weak.8 In the 2017 DSA, which used the World Bank’s CPIA score to determine
policy-dependent thresholds for the DSA, Zambia was assessed as a “medium” performer. The
weaker debt-carrying capacity is predominantly attributed to the low level of FX reserves on
current policies. This lowers the debt burden thresholds for Zambia.
Components Coefficients (A) 10-year average values CI Score components Contribution of

(B) (A*B) = (C) components
CPIA 0.385 3.317 1.28 56%
Real growth rate (in percent) 2.719 3.234 0.09 4%
Import coverage of reserves (in
percent) 4.052 12.337 0.50 22%
Import coverage of reserves^2 (in
percent) -3.990 1.522 -0.06 -3%
Remittances (in percent) 2.022 0.027 0.00 0%
World economic growth (in percent) 13.520 3.559 0.48 21%
CI Score 2.29 100%
CI rating Weak
External DSA Assessment
12. Baseline breaches are persistent and significant for both solvency and liquidity
indicators (Figure 1). All four external debt burden indicators breach their indicative
thresholds and three of them by large margins and throughout the medium-term. This marks
an important deterioration compared to the October 2017 DSA, reflecting a worsened
macroeconomic/debt situation (namely, lower growth, weaker currency, larger deficits and
external loan disbursements). Even if compared to the indicative thresholds for a medium
performer, the baseline breaches of PV of PPG debt to GDP (peaking at 67 percent) and PPG
debt service to revenue (peaking above 30 percent, net of Eurobond amortization) are
significant and would endure for the next 10 years, though breaches of the debt service to
exports ratio become less pronounced.
13. Containing Zambia’s external debt vulnerabilities requires large adjustment

efforts and a coherent policy framework to strengthen debt-carrying capacity. The staff-
proposed adjustment scenario envisages a cumulative 8½ percent of GDP fiscal adjustment
(on a commitment basis) over the next five years (with 4½ percent of GDP front-loaded for
2019 centered on substantial scaling back of the recent surge in foreign-financed capital
expenditure). Under this scenario, the government is expected to regain investor confidence
which would lead to improved growth prospects and support the authorities’ efforts in
rebuilding FX reserves and strengthening debt-carrying capacity. While some improvements
are observed for the solvency indicators, the threshold breach of the PPG debt service to
revenue indicator would remain significant and persistent (Text Figure 3), as a large part of the
8 The composite indicator is calculated using data from the April 2019 WEO.

ZAMBIA
external debt payments is associated with already disbursed debt (¶6). Enhanced domestic
revenue mobilization would be essential to improve the liquidity indicators but could take time
to bear fruit. As a cross-check, the historical scenario suggests the adjustment is within reach
and the external debt burden indicators would significantly improve if (with adjustment) the
economy reverts to its historical trends (e.g. contribution from growth, exchange rate
movements, and foreign borrowing).
Text Figure 3. Zambia: External PPG DSA under Staff-Proposed Adjustment Scenario
PV of debt-to GDP ratio PV of debt-to-exports ratio

100 400
90 350
80
300
70
60 250
50 200
40
150
30
100
20
10 50
Most extreme shock: Exports Most extreme shock: Exports
0 0
2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029
Debt service-to-exports ratio Debt service-to-revenue ratio

50 60
45
50
40
35 40
30
25 30
20
20
15
10 10
5 Most extreme shock: Exports Most extreme shock: Exports
0 0
2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029
Baseline Historical scenario Most extreme shock 1/ Threshold
Source: IMF staff projections.
Public DSA Assessment
14. Public debt is projected to steadily increase in the near-term before declining
over the medium-term as financing constraints force a fiscal adjustment. The PV of debt
to GDP ratio is projected to increase from 81 percent in 2018 to 95 percent by 2021, more than
twice the prudent benchmark (35 percent of GDP) for a weak performer. The rising debt stock
and increasing roll-over needs (in part due to a larger portion of short-term bills) would keep
the debt service-to-revenue ratio at elevated levels over the projection horizon. A
regularization/clearance plan is needed for the sizeable budget expenditure arrears, which
should be accommodated to the extent possible within the budget envelope. With the
baseline scenario already identifying significant and sustained macroeconomic pressures, the
debt situation remains vulnerable to various macro-fiscal shocks as found by the stress tests.
The standardized exports shock is the most extreme shock for all the external and overall
public debt burden indicators in this DSA.

ZAMBIA
Sustainability Assessment
15. Zambia’s public debt under current policies is on an unsustainable path and large
upfront and sustained fiscal adjustment is essential to contain debt vulnerabilities. There
are significant and persistent breaches in multiple debt burden indicators under the baseline
scenario, which place Zambia’s public debt on an unsustainable path. Tight financing
constraints (both externally and domestically) are forcing the government to adjust while
budget expenditure arrears continue to accumulate. While the government has been current
on its debt payments, a large upfront and sustainable fiscal adjustment is essential to contain
debt vulnerabilities and allow the government to meet its future financial obligations. The
staff-proposed adjustment scenario (centered on substantial scaling back of the recent surge
in foreign-financed capital expenditure) is anchored on putting the debt trajectory on a firmly
downward path, which is expected to restore investor confidence, improve financing
conditions, and revive FX inflows (including to roll over the 2022 Eurobonds). The risk of debt
distress is however expected to remain extremely elevated (with heightened liquidity risks)
even under the adjustment scenario.
Final Risk Rating and Application of Judgment
16. Significant near-term breaches of the liquidity indicators suggest an elevated

probability of a future distress event. The sharp increase in external debt payments weighs
heavily on government revenue (averaging 34 percent of revenue over 2019-21) and FX
reserves, and is susceptible to interest rate and exchange rate risks which have already started
to materialize (Text Figure 4). A standard exports shock (to which Zambia is susceptible as a
commodity producer) would push the ratio up to 40 percent.9
Text Figure 4. Central Government External Debt Structure
9During 2015-16, a period of a large decline in copper prices and a depreciating exchange rate, the external
PPG debt service to revenue ratio averaged 16 percent with the government accumulating a large amount of
arrears to domestic suppliers while fully meeting priority spending mandates (including debt payments).

ZAMBIA
17. Zambia’s ability to borrow has been increasingly hampered by the loosening
fiscal stance against rising debt vulnerabilities. The government continues to issue in the
domestic debt market. While auctions have been frequently undersubscribed, private
placements have provided some support, and the secondary market remains active. The
majority of foreign investment exposure in the LC debt market has so far been maintained,
although interest in additional exposure has receded. Zambia also continues to receive very
large positive net inflows from commercial banks on contracted project loans.
18. In staff’s judgment, the risk of external and overall public debt distress for
Zambia is currently very high. While the threshold-based analysis points to elevated liquidity
risks and a relatively high probability of a distress event over the projection horizon, the
government has remained current on its external and domestic debt obligations, with no
default or arrears on any debt obligation.10 The stock of outstanding budget expenditure
arrears in part reflects chronic structural weaknesses in PFM and budget execution which in
staff’s judgment are not forced borrowing undertaken to circumvent liquidity constraints and
thus are not by themselves a signal of debt distress. In addition, several mitigating factors in
staff’s judgment could help avert a distress event in the near term. First, the authorities are
determined to prioritize debt payments over other obligations and in line with the
constitutional priority of debt service payments are proactively identifying resources (including
through central bank FX purchases to replenish reserves) to achieve this. Second, the
authorities are discussing relief measures on a voluntary basis with a bilateral creditor, which
could be a protracted process but would ease somewhat near-term liquidity pressures.11 Third,
FX reserves appear still sufficient to cover the next 12 months’ external debt payments,
provided there is no sharp reversal in capital flows. Lastly, in the domestic markets, some
“nonmarket” players (e.g. pension funds) still possess resources to continue participating in
government debt auctions and have space to augment their portfolio allocations in the near-
term. With these, staff assess that the risk of debt distress is elevated in Zambia, with strong
actions needed to begin reducing debt-related vulnerabilities.
The authorities agreed with staff’s assessment of the current debt situation and the
sustainability of the debt position under current policies. They also concurred with staff on the
need for large upfront adjustment targeted directly at reducing external debt accumulation to
contain debt vulnerabilities. While they expected the large investment in infrastructure to pay
off over the long-term so that growth over the medium-term could be significantly higher
than projected by staff, they recognized that near-term debt service pressures need to be
10 With the exception of the de minimis arrears reported in footnote 5, which are in the process of being
cleared.
11Per LIC DSF guidance, voluntary reprofiling discussions (i.e. not expected to result in a distressed debt
exchange) are not to be considered a distress event.

ZAMBIA
carefully managed. In this context, following a Cabinet meeting in May 2019 they announced
plans to prepare a list of projects to be slowed down, postponed, or cancelled in accordance
with contract provisions. They also stressed the importance of dismantling budget expenditure
arrears to release liquidity and of revenue mobilization in strengthening debt repayment
capacity and highlighted that several revenue enhancing initiatives are already underway
including notably the planned introduction of the new sales tax.
Figure 1. Zambia: Indicators of Public and Publicly Guaranteed External Debt Under
Alternatives Scenarios, 2019–29
PV of debt-to GDP ratio PV of debt-to-exports ratio
120 450
400
100
350
80 300
250
60
200
40 150
100
20
Most extreme shock: Exports 50
Most extreme shock: Exports
0 0
2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029

70 90
80
60
70
50
60
40 50
30 40
30
20
20
10 10
Most extreme shock: Exports Most extreme shock: Exports
0 0
2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029
Baseline Historical scenario Most extreme shock 1/ Threshold
Customization of Default Settings Borrowing assumptions on additional financing needs resulting from the stress tests*
Size Interactions Default User defined
Shares of marginal debt

No No External PPG MLT debt 100%
Tailored Stress Terms of marginal debt
Combined CL No Avg. nominal interest rate on new borrowing in USD 6.0% 6.0%
Natural disaster n.a. n.a. USD Discount rate 5.0% 5.0%
Commodity price 2/ No No Avg. maturity (incl. grace period) 15 15
Market financing No No Avg. grace period 5 5
Note: "Yes" indicates any change to the size or interactions of * Note: All the additional financing needs generated by the shocks under the stress tests are
the default settings for the stress tests. "n.a." indicates that the assumed to be covered by PPG external MLT debt in the external DSA. Default terms of marginal
stress test does not apply. debt are based on baseline 10-year projections.
Sources: Country authorities; and staff estimates and projections.

1/ The most extreme stress test is the test that yields the highest ratio in or before 2029. The stress test with a one-off breach is also presented (if any), while the one-off
breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach,
only that stress test (with a one-off breach) would be presented.
2/ The magnitude of shocks used for the commodity price shock stress test are based on the commodity prices outlook prepared by the IMF research department.

ZAMBIA
Figure 2. Zambia: Indicators of Public Debt Under Alternative Scenarios, 2019–29

PV of Debt-to-GDP Ratio
140
120
100
80
60
40
20 Most extreme shock: Exports
0
2019 2021 2023 2025 2027 2029
PV of Debt-to-Revenue Ratio Debt Service-to-Revenue Ratio

700 120
600 100
500
80
400
60
300
40
200

0 0
2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029
Baseline Most extreme shock 1/

TOTAL public debt benchmark Historical scenario
Borrowing assumptions on additional financing needs resulting from the stress Default User defined
tests*
Shares of marginal debt
External PPG medium and long-term 54% 54%
Domestic medium and long-term 23% 23%
Domestic short-term 23% 23%
Terms of marginal debt
External MLT debt
Avg. nominal interest rate on new borrowing in USD 6.0% 6.0%
Avg. maturity (incl. grace period) 15 15
Avg. grace period 5 5
Domestic MLT debt
Avg. real interest rate on new borrowing 10.0% 10.0%
Avg. maturity (incl. grace period) 9 9
Avg. grace period 8 8
Domestic short-term debt
Avg. real interest rate 8.3% 8.3%
* Note: The public DSA allows for domestic financing to cover the additional financing needs generated by the shocks under
the stress tests in the public DSA. Default terms of marginal debt are based on baseline 10-year projections.
1/ The most extreme stress test is the test that yields the highest ratio in or before 2029. The stress test with a one-off breach
is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off
breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off
breach) would be presented.

14
ZAMBIA
Figure 3. Zambia: Drivers of Debt Dynamics – Baseline Scenario
INTERNATIONAL MONETARY FUND
Gross Nominal PPG External Debt Debt-creating flows Unexpected Changes in Debt 1/
(in percent of GDP; DSA vintages) (percent of GDP) (past 5 years, percent of GDP)
80
80
Current DSA proj. Residual 45
Previous DSA
60 40
70 DSA-2013 Interquartile
range (25-75)
Price and 35
60 exchange rate40
30
50 25
Real GDP
growth 20 Change in PPG
40 20 debt 3/
30 0 15
Nominal
interest rate
10
20 Median
-20 5
Current
10 account + FDI
0
-40
0 -5
Change in 5-year 5-year
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
PPG debt 3/ Contribution of Distribution across LICs 2/
historical projected -10 unexpected
change change
Public debt
Gross Nominal Public Debt Debt-creating flows Unexpected Changes in Debt 1/
(in percent of GDP; DSA vintages) (percent of GDP) (past 5 years, percent of GDP)
Residual 100
Current DSA
Previous DSA proj. 60
DSA-2013 Interquartile
120 Other debt range (25-75)
creating flows 50
100 50
Real Exchange
rate 40
80 depreciation
Real GDP 30 Change in debt
growth
60
0
Real interest 20
40 rate
10
20 Primary deficit
-50 Median
0 0
Change in debt 5-year 5-year
2025
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2026
2027
2028
2029
Distribution across LICs 2/

historical projected Contribution of
change change -10
1/ Difference between anticipated and actual contributions on debt ratios.

2/ Distribution across LICs for which LIC DSAs were produced.
3/ Given the relatively low private external debt for average low-income countries, a ppt change in PPG external debt should be largely explained by the drivers of the external
debt dynamics equation.
Figure 4. Zambia: Realism Tools
3-Year Adjustment in Primary Balance Fiscal Adjustment and Possible Growth Paths 1/
(Percentage points of GDP)
6 4
14 Distribution 1/
Projected 3-yr adjustment 5

12 3
3-year PB adjustment greater
In percentage points of GDP

than 2.5 percentage points of
10 4
GDP in approx. top quartile 2
In percent
8 3
1
6
2
4
0
1
0 -1
0 2013 2014 2015 2016 2017 2018 2019 2020
2.5
0.0
0.5
1.0
1.5
2.0
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
more
-4.5
-4.0
-3.5
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
Baseline Multiplier = 0.2 Multiplier = 0.4

Multiplier = 0.6 Multiplier = 0.8
1/ Data cover Fund-supported programs for LICs (excluding emergency financing) approved since 1990. The size 1/ Bars refer to annual projected fiscal adjustment (right-hand side scale) and lines show possible real GDP
of 3-year adjustment from program inception is found on the horizontal axis; the percent of sample is found on growth paths under different fiscal multipliers (left-hand side scale).
the vertical axis.
Public and Private Investment Rates Contribution to Real GDP growth

(percent of GDP) (percent, 5-year average)
38 5
36
34 5
32
30 4
28
26 4
24
15
3
22
20 3
18
16 2
14
12 2
10
8 1
6
4 1
2
0 0
Historical Projected (Prev. DSA) Projected (Curr. DSA)
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Gov. Invest. - Prev. DSA Gov. Invest. - Curr. DSA Contribution of other factors
ZAMBIA
Priv. Invest. - Prev. DSA Priv. Invest. - Curr. DSA Contribution of government capital
15
ZAMBIA
Figure 5. Zambia: Market-Financing Risk Indicators
GFN 1/ EMBI 2/
Benchmarks 14 570
Values 19 1575
Breach of benchmark Yes Yes
Potential heightened
liquidity needs High
1/ Maximum gross financing needs (GFN) over 3-year baseline projection horizon.
2/ EMBI spreads correspond to the latest available data.
90 PV of debt-to GDP ratio PV of debt-to-exports ratio

180
80 160
70
140
60
120
50
100
40
80
30
60
20
40
10
20
0
0
2019 2021 2023 2025 2027 2029
2019 2021 2023 2025 2027 2029

35 70
30 60
25 50
20 40
15 30
10 20
5 10
0 0
2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029
Baseline Market financing Threshold

Table 1. Zambia: External Debt Sustainability Framework, Baseline Scenario, 2016–39
(In Percent of GDP, unless otherwise indicated)
Actual Projections Average 8/
Historical Projections
2016 2017 2018 2019 2020 2021 2022 2023 2024 2029 2039
External debt (nominal) 1/ 83.4 74.5 87.9 102.8 108.5 111.4 111.4 110.7 109.1 86.8 61.5 44.9 103.0 Definition of external/domestic debt Residency-based
of which: public and publicly guaranteed (PPG) 39.5 41.9 53.7 65.0 70.2 73.7 74.5 74.8 74.3 60.3 47.9 25.1 69.3
Is there a material difference between the two
Yes
criteria?
Change in external debt 1.5 -9.0 13.5 14.9 5.7 3.0 0.0 -0.6 -1.6 -4.1 -1.5
Identified net debt-creating flows 2.1 -18.6 -2.1 -0.4 -1.3 -2.7 -3.5 -3.6 -4.0 -4.1 -4.4 -8.4 -3.2
Non-interest current account deficit 2.1 0.8 0.9 0.3 0.1 -0.6 -1.2 -1.9 -2.1 -2.9 -2.6 -2.2 -1.8
Deficit in balance of goods and services 1.2 -1.4 0.8 1.3 0.2 -0.5 -1.0 -1.4 -1.7 -1.9 -1.9 -3.3 -1.1
Exports 35.4 35.1 37.4 39.2 40.9 42.1 43.2 44.2 44.8 44.5 43.5
Debt Accumulation
Imports 36.6 33.7 38.2 40.6 41.0 41.6 42.2 42.7 43.2 42.6 41.5
Net current transfers (negative = inflow) -1.0 -1.4 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 6.0 20
-1.6 -1.0
of which: official 0.0 -0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 18
5.0
Other current account flows (negative = net inflow) 1.9 3.5 1.1 0.1 0.9 0.9 0.8 0.6 0.6 0.0 0.3 2.7 0.4
16
Net FDI (negative = inflow) -2.3 -4.6 -2.0 -2.0 -2.9 -3.7 -4.4 -4.4 -4.4 -4.4 -4.4 -5.2 -3.9
4.0 14
Endogenous debt dynamics 2/ 2.3 -14.8 -0.9 1.2 1.6 1.7 2.0 2.6 2.5 3.2 2.6
Contribution from nominal interest rate 1.1 0.9 1.8 3.2 3.3 3.6 3.8 4.3 4.1 4.6 3.7 12
3.0
Contribution from real GDP growth -3.1 -2.4 -2.6 -2.0 -1.8 -1.9 -1.8 -1.6 -1.6 -1.4 -1.1
10
Contribution from price and exchange rate changes 4.3 -13.3 0.0 … … … … … … … …
2.0
Residual 3/ -0.7 9.6 15.5 15.3 6.9 5.6 3.5 3.0 2.4 0.0 2.9 15.9 3.1 8
of which: exceptional financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 6
1.0
4
Sustainability indicators
0.0
PV of PPG external debt-to-GDP ratio ... ... 47.5 59.1 64.8 67.4 67.5 67.6 67.2 55.3 43.9 2
PV of PPG external debt-to-exports ratio ... ... 127.2 150.5 158.7 159.9 156.2 153.0 150.0 124.2 101.0 -1.0 0
PPG debt service-to-exports ratio 10.1 8.8 11.7 16.7 16.6 17.3 23.2 15.1 24.4 18.5 14.5 2019 2021 2023 2025 2027 2029
PPG debt service-to-revenue ratio 19.9 17.8 22.1 32.6 33.2 35.5 48.7 32.4 53.2 40.2 30.5
Gross external financing need (Million of U.S. dollars) 904.2 -503.0 729.7 1402.5 1070.1 848.8 1240.8 303.7 1327.3 635.8 188.1 Debt Accumulation
Grant-equivalent financing (% of GDP)
Key macroeconomic assumptions
Grant element of new borrowing (% right scale)
Real GDP growth (in percent) 3.8 3.5 3.7 2.0 1.7 1.7 1.6 1.5 1.5 1.6 1.8 5.6 1.6
GDP deflator in US dollar terms (change in percent) -5.0 19.3 -0.4 -12.2 -4.1 -1.4 -0.6 -0.1 0.4 2.6 2.6 -0.4 -0.6
Effective interest rate (percent) 4/ 1.4 1.3 2.5 3.3 3.2 3.3 3.4 3.9 3.8 5.3 6.2 2.4 4.1 External debt (nominal) 1/
Growth of exports of G&S (US dollar terms, in percent) -9.8 22.4 10.0 -5.9 1.5 3.5 3.5 3.5 3.5 4.0 4.3 8.3 2.6 of which: Private
Growth of imports of G&S (US dollar terms, in percent) -10.9 13.8 16.9 -4.8 -1.4 1.8 2.4 2.5 3.0 4.0 4.3 8.6 2.0 120
Grant element of new public sector borrowing (in percent) ... ... ... 11.3 16.1 15.8 14.3 18.9 8.0 12.0 11.2 ... 12.4
Government revenues (excluding grants, in percent of GDP) 18.0 17.3 19.8 20.1 20.5 20.6 20.6 20.5 20.6 20.5 20.6 17.0 20.5 100
Aid flows (in Million of US dollars) 5/ 497.0 431.8 407.0 308.2 314.4 242.8 269.7 226.9 187.6 136.6 206.2
Grant-equivalent financing (in percent of GDP) 6/ ... ... ... 1.5 1.7 1.4 1.3 1.0 0.8 0.6 0.6 ... 1.0
80
Grant-equivalent financing (in percent of external financing) 6/ ... ... ... 13.0 17.2 17.0 15.3 20.5 8.9 12.9 11.5 ... 13.5
Nominal GDP (Million of US dollars) 20,941 25,868 26,720 23,946 23,342 23,415 23,636 23,951 24,401 29,691 45,642
Nominal dollar GDP growth -1.4 23.5 3.3 -10.4 -2.5 0.3 0.9 1.3 1.9 4.2 4.5 5.3 1.1 60
Memorandum items: 40
PV of external debt 7/ ... ... 81.8 96.8 103.1 105.1 104.3 103.5 102.0 81.8 57.5
In percent of exports ... ... 218.8 246.7 252.3 249.3 241.4 234.4 227.6 183.8 132.3 20
Total external debt service-to-exports ratio 12.7 5.2 10.2 19.1 18.1 18.9 25.0 17.1 26.6 21.2 17.0
PV of PPG external debt (in Million of US dollars) 12704.2 14145.7 15134.1 15774.5 15953.0 16184.5 16406.7 16415.7 20035.1 0
(PVt-PVt-1)/GDPt-1 (in percent) 5.4 4.1 2.7 0.8 1.0 0.9 0.1 1.6
2019 2021 2023 2025 2027 2029
Non-interest current account deficit that stabilizes debt ratio 0.7 9.8 -12.6 -14.5 -5.6 -3.6 -1.2 -1.3 -0.5 1.2 -1.1
Sources: Country authorities; and staff estimates and projections. 0

1/ Includes both public and private sector external debt.
2/ Derived as [r - g - ρ(1+g) + Ɛα (1+r)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, ρ = growth rate of GDP deflator in U.S. dollar terms, Ɛ=nominal appreciation of the local currency, and α= share
of local currency-denominated external debt in total external debt.
3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.
4/ Current-year interest payments divided by previous period debt stock.
ZAMBIA
5/ Defined as grants, concessional loans, and debt relief.
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6/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).
7/ Assumes that PV of private sector debt is equivalent to its face value.
17
8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.
18
ZAMBIA
Table 2. Zambia: Public Sector Debt Sustainability Framework, Baseline Scenario, 2016–39
(In Percent of GDP, unless otherwise indicated)
Actual Projections Average 6/
2016 2017 2018 2019 2020 2021 2022 2023 2024 2029 2039 Historical Projections
Public sector debt 1/ 60.7 65.6 80.8 94.2 97.7 100.0 99.3 98.2 96.4 84.4 76.3 40.0 93.5
Residency-
of which: external debt 39.5 41.9 53.7 65.0 70.2 73.7 74.5 74.8 74.3 60.3 47.9 25.1 69.3 Definition of external/domestic debt
based
of which: local-currency denominated
Change in public sector debt 2.6 4.9 15.3 13.4 3.5 2.3 -0.6 -1.1 -1.8 -1.5 -0.1
Is there a material difference
Identified debt-creating flows -6.8 -0.2 6.9 4.4 1.3 0.7 -0.1 -0.5 -1.2 -2.3 -1.4 2.8 -0.7 Yes
between the two criteria?
Primary deficit 2.2 3.5 2.7 -1.1 -1.0 -2.8 -3.3 -3.8 -4.1 -4.8 -4.0 2.7 -3.6
Revenue and grants 18.2 17.5 20.0 20.3 20.6 20.7 20.7 20.6 20.7 20.6 20.7 17.9 20.6
of which: grants 0.2 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.0 Public sector debt 1/
Primary (noninterest) expenditure 20.5 21.0 22.7 19.2 19.6 17.9 17.4 16.8 16.6 15.8 16.6 20.6 17.0
Automatic debt dynamics -9.1 -3.7 4.2 5.5 2.4 3.5 3.2 3.3 2.8 2.5 2.6 of which: local-currency denominated
Contribution from interest rate/growth differential -0.3 -1.1 -0.5 0.0 0.8 1.3 1.5 2.0 1.8 2.8 2.9
of which: contribution from average real interest rate 1.8 1.0 1.8 1.6 2.3 3.0 3.1 3.5 3.3 4.2 4.2 of which: foreign-currency denominated
of which: contribution from real GDP growth -2.1 -2.1 -2.3 -1.6 -1.6 -1.7 -1.6 -1.4 -1.5 -1.4 -1.4 120
Contribution from real exchange rate depreciation -8.7 -2.7 4.7 ... ... ... ... ... ... ... ...
100
Other identified debt-creating flows 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Privatization receipts (negative) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 80
Recognition of contingent liabilities (e.g., bank recapitalization) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
60
Debt relief (HIPC and other) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other debt creating or reducing flow (please specify) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 40
Residual 9.5 5.1 8.3 14.5 3.7 3.8 1.2 0.7 0.4 0.5 1.1 3.4 2.1
20
Sustainability indicators 0
PV of public debt-to-GDP ratio 2/ ... ... 81.3 93.5 95.5 96.7 95.1 93.4 91.6 80.6 73.3 2019 2021 2023 2025 2027 2029
PV of public debt-to-revenue and grants ratio … … 405.9 460.6 463.1 466.6 459.4 452.8 443.5 391.4 354.8
Debt service-to-revenue and grants ratio 3/ 58.6 57.8 71.2 81.7 82.2 75.2 83.2 63.1 80.8 72.6 77.0
Gross financing need 4/ 12.9 13.6 17.0 19.5 16.0 13.0 13.6 8.8 12.3 11.1 13.3 of which: held by residents
Key macroeconomic and fiscal assumptions of which: held by non-residents

120
Real GDP growth (in percent) 3.8 3.5 3.7 2.0 1.7 1.7 1.6 1.5 1.5 1.6 1.8 5.6 1.6
Average nominal interest rate on external debt (in percent) 5.5 5.4 6.4 4.8 4.9 4.7 4.7 5.1 4.8 6.0 5.7 3.1 5.3 100
Average real interest rate on domestic debt (in percent) -0.6 -0.9 1.2 0.6 2.0 4.2 4.5 5.0 5.5 7.8 9.2 4.1 5.2 80
Real exchange rate depreciation (in percent, + indicates depreciation) -19.8 -7.3 12.3 … ... ... ... ... ... ... ... 3.7 ...
60
Inflation rate (GDP deflator, in percent) 13.6 10.1 9.5 10.0 9.7 8.2 8.3 8.0 7.7 7.2 7.3 9.3 8.0
Growth of real primary spending (deflated by GDP deflator, in percent) -14.3 6.1 12.3 -13.7 3.6 -7.0 -1.3 -2.0 0.1 2.1 2.7 8.5 -1.6 40
Primary deficit that stabilizes the debt-to-GDP ratio 5/ -0.4 -1.4 -12.6 -14.5 -4.5 -5.1 -2.7 -2.7 -2.3 -3.3 -4.0 -4.8 -4.0 20
PV of contingent liabilities (not included in public sector debt) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
0
2019 2021 2023 2025 2027 2029
1/ Coverage of debt: The central government plus social security, central bank, government-guaranteed debt, non-guaranteed SOE debt . Definition of external debt is Residency-based.
2/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections.
3/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt.
4/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period and other debt creating/reducing flows.
5/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question.
6/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.
ZAMBIA
Table 3. Zambia: Sensitivity Analysis for Key Indicators and Publicly Guaranteed External
Debt, 2019–29
(In Percent)
Projections 1/
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
PV of debt-to GDP ratio

Baseline 59 65 67 67 68 67 66 63 60 58 55
A. Alternative Scenarios
A1. Key variables at their historical averages in 2019-2029 2/ 59 55 52 47 43 39 35 32 28 25 22
0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A
B. Bound Tests
B1. Real GDP growth 59 68 73 73 73 73 71 69 65 62 60
B2. Primary balance 59 65 75 76 78 78 77 75 72 69 67
B3. Exports 59 81 109 111 113 114 113 110 104 99 94
B4. Other flows 3/ 59 69 75 76 76 76 75 72 69 66 63
B5. Depreciation 59 82 84 84 84 84 81 78 75 71 69
B6. Combination of B1-B5 59 75 81 82 83 83 82 79 76 73 70
C. Tailored Tests
C1. Combined contingent liabilities 59 67 71 71 72 72 71 69 66 63 61
C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
C3. Commodity price 59 67 71 71 72 72 70 68 64 62 59
C4. Market Financing 59 73 76 76 77 77 75 72 68 64 61
Threshold 30 30 30 30 30 30 30 30 30 30 30
PV of debt-to-exports ratio
Baseline 151 159 160 156 153 150 146 141 134 129 124
0 151 138 128 116 104 93 81 70 57 44 33
B. Bound Tests
B1. Real GDP growth 151 159 160 156 153 150 146 141 134 129 124
B3. Exports 151 242 396 392 389 387 382 373 355 338 322
B4. Other flows 3/ 151 168 179 176 173 170 167 161 154 147 141
B5. Depreciation 151 158 156 152 149 146 141 136 130 125 120
C. Tailored Tests
Threshold 140 140 140 140 140 140 140 140 140 140 140
Debt service-to-exports ratio
Baseline 17 17 17 23 15 24 21 23 24 19 19
0 17 15 14 18 11 18 15 15 15 11 9
B. Bound Tests
B1. Real GDP growth 17 17 17 23 15 24 21 23 24 19 19
B3. Exports 17 22 33 47 33 50 44 51 58 50 49
B4. Other flows 3/ 17 17 18 24 16 26 22 25 27 22 21
B5. Depreciation 17 17 17 23 15 24 21 23 23 19 18
C. Tailored Tests
Threshold 10 10 10 10 10 10 10 10 10 10 10
Debt service-to-revenue ratio

Baseline 33 33 35 49 32 53 47 50 52 42 40
0 33 30 30 39 24 38 32 33 32 23 20
B. Bound Tests
B1. Real GDP growth 33 35 39 53 35 58 51 54 56 46 44
B3. Exports 33 36 44 65 47 71 64 73 83 72 69
B4. Other flows 3/ 33 33 37 51 35 56 49 54 58 48 46
B5. Depreciation 33 43 45 62 41 67 59 63 65 52 50
C. Tailored Tests
Threshold 14 14 14 14 14 14 14 14 14 14 14

1/ A bold value indicates a breach of the threshold.
2/ Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.
3/ Includes official and private transfers and FDI.

ZAMBIA
Table 4. Zambia: Sensitivity Analysis for Key Indicators of Public Debt, 2019–29
Projections 1/
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
PV of Debt-to-GDP Ratio
Baseline 94 96 97 95 93 92 89 86 84 82 81
0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A
B. Bound Tests
B1. Real GDP growth 94 100 106 106 106 105 104 103 102 102 103
B3. Exports 94 106 126 126 126 125 123 120 116 112 108
B4. Other flows 3/ 94 100 105 104 103 101 98 95 93 90 88
B5. Depreciation 94 105 104 101 99 96 93 90 87 85 84
C. Tailored Tests
TOTAL public debt benchmark 35 35 35 35 35 35 35 35 35 35 35
PV of Debt-to-Revenue Ratio
Baseline 461 463 467 459 453 443 430 417 406 397 391
0 82 64 58 65 51 67 69 72 74 71 72
B. Bound Tests
B1. Real GDP growth 461 484 513 512 512 510 503 498 495 495 499
B3. Exports 461 514 610 610 610 606 595 580 560 541 526
B4. Other flows 3/ 461 483 507 502 497 489 477 463 449 437 429
B5. Depreciation 461 508 503 490 479 466 450 435 423 414 408
C. Tailored Tests
Debt Service-to-Revenue Ratio

Baseline 82 82 75 83 63 81 81 83 82 74 73
0 82 64 58 65 51 67 69 72 74 71 72
B. Bound Tests
B1. Real GDP growth 82 83 81 91 71 92 92 95 95 85 87
B3. Exports 82 82 78 91 72 90 90 96 103 95 93
B4. Other flows 3/ 82 82 76 86 66 83 83 87 88 80 78
B5. Depreciation 82 79 77 88 67 89 88 90 91 80 79
C. Tailored Tests

1/ A bold value indicates a breach of the benchmark.
2/ Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP.
3/ Includes official and private transfers and FDI.

Statement by Mr. Dumisani Mahlinza, Executive Director for Zambia,
Ms. Mmatshepo Maidi and Mr. Ted Sitima-wina, Senior Advisors
to the Executive Director.
July 24, 2019
Introduction
1. Our authorities appreciate the candid and constructive policy dialogue during the recent
Article IV consultation. They broadly concur with the staff assessment and key policy
recommendations.
2. The Zambian authorities have continued to pursue their long-term development

aspirations through the implementation of the Seventh National Development Plan (7NDP) and
Economic Stabilization and Growth Programme. The 7NDP seeks to create a diversified and
resilient economy for sustained growth and socioeconomic transformation driven by agriculture,
tourism, manufacturing and mining, among others. Consistent with this objective, the authorities
have prioritized public infrastructure investment financed largely by foreign borrowing.
3. In the course of implementing the 7NDP, significant fiscal pressures have arisen leading
to large fiscal deficits, the accumulation of domestic arrears and a growing debt service
obligation. Recognizing these challenges, in May 2019, the authorities announced a series of
measures to contain spending including, the indefinite postponement of the contraction of new
non-concessional loans; cancellation of some committed but undisbursed loans; and increased
control and management of disbursements on foreign-financed loans. In this context, our
authorities recognize the need for an urgent policy adjustment to entrench macroeconomic
stability and bring debt to sustainable levels.
Recent Economic Developments and Outlook
4. Real GDP grew marginally by 3.7 percent in 2018 from 3.5 percent in 2017, reflecting
modest expansion in telecommunications, financial and insurance activities, wholesale and retail
trade, and mining. However, in 2019 growth is expected to be weighed down by the drought in
the southern and western parts of the country, which has affected agricultural output and
electricity production as well as weak domestic demand. Over the medium term, growth is
expected to recover following the completion of large public infrastructure projects.
5. Inflation has remained within the Bank of Zambia’s (BOZ) target band (6-8 percent),
rising from 6.6 percent in 2017 to 7.0 percent in 2018. Going forward, inflation is expected to
trend upwards due to an increase in food and fuel prices as well as exchange rate depreciation.
2
6. The current account deficit declined to 1.3 percent of GDP in 2018 from 1.7 percent of
GDP in 2017, reflecting a recovery in copper exports at higher prices. At the same time, foreign
reserves declined from 2.4 months of import cover in 2017 to 1.9 months in 2018.
Fiscal Policy and Debt Sustainability
7. The authorities are committed to pursue a front-loaded fiscal adjustment with a view to
reduce the budget deficit to 6.5 percent of GDP in 2019 and reaching 3 to 4 percent of GDP in
the medium term. In this regard, they are taking measures to enhance domestic revenue
mobilization by broadening the tax base, reducing tax expenditures and exemptions, simplifying
the tax system, strengthening compliance, and enhancing tax audit capacity. The auditing of
large tax payers, particularly in the mining sector, is presently being carried out. The switch from
VAT to Sales Tax, announced as part of the 2019 budget, is expected to result in large windfall
gains. To ensure smooth transition, the authorities are addressing some implementation issues
that were identified during the recently concluded country-wide consultation.
8. On the expenditure side, efforts to contain spending include aligning cash spending with
available financing. Specific measures currently being undertaken include: prioritizing the
funding of projects that are at least 80 percent complete; delaying the implementation of non-
growth supportive projects; controlling foreign financed disbursements; curtailing personal
emoluments (PEs) related expenditures, including the restriction of leave commutation while
obliging all Government officials to take leave; and suspending both foreign and domestic travel
for top Government officials. At the same time, strict adherence to the provisions of the Public
Finance Management Act (PFMA) will be enforced. The authorities are also taking steps to
tighten the commitment control system with a view to curb accumulation of domestic arrears.
They plan to steadily clear the existing stock of arrears to ease liquidity in the market and
improve financial sector performance.
9. The authorities recognize that strengthening public finance management will anchor
fiscal sustainability and ensure efficient utilization of public resources. In this context, they are
taking steps to improve the efficiency of public investments, including procurement, selection
and implementation of projects. Accordingly, the authorities are working to review the Zambia
Public Procurement Act (ZPPA) to ensure value for money. They have also established a Public
Investment Board (PIB) to review and take decisions relating to public investment management
for new capital projects. In parallel, the authorities are working on the Planning and Budgeting
Bill and revising the Loans and Guarantees Act, which will provide the necessary framework for
medium-term debt management.
10. Our authorities note the outcome of the debt sustainability analysis (DSA) and reiterate
their commitment to bring debt onto a sustainable path. In this regard, they have taken a decision
to indefinitely postpone contraction of all new non-concessional debt. They plan to re-scope,
cancel or postpone some projects with a view to free up $500 million annually over the medium
3
term. In addition, they are discussing some debt reprofiling. On debt obligations, they are
determined to remain current on debt service, with no default or arrears on either external or
domestic debt. Further, measures are being taken to enhance debt management capacity and
contain debt vulnerabilities. These include improving monthly cash flow forecasts to facilitate
more flexibility in domestic debt auctions and enhancing oversight of state-owned enterprise
(SOE) debt to allow timely monitoring of fiscal risks. In this context, the authorities look
forward to the debt management TA to be jointly delivered by IMF, World Bank, and the
Macroeconomic and Financial Management Institute of Eastern and Southern Africa (MEFMI).
Monetary and Exchange Rate Policies
11. In response to rising inflationary pressures, the Monetary Policy Committee (MPC)
increased the policy rate by 50 basis points to 10.25 percent in May 2019, further demonstrating
the authorities’ resolve to stabilize monetary conditions. Going forward, the BoZ will continue to
use monetary policy instruments at its disposal to keep inflation within the target band.
Supported by the fiscal reorientation, the authorities believe that the current policy framework is
adequate to anchor inflation expectations. They look forward to the completion of the forecasting
and policy analysis system (FPAS) being developed with Fund TA, which will be useful in
monetary policy decision making. The authorities reiterate their commitment to a flexible
exchange rate. In this context, interventions in the foreign exchange market will be limited to
smoothing excessive volatility as well as opportunistically building reserves, consistent with
staff’s recommendation.
Financial Sector
12. Safeguarding financial sector stability and resilience remains a key priority for the
authorities. To this end, they have made good progress in upgrading the institutional, regulatory,
supervision and crisis management frameworks in line with the 2017 FSAP recommendations.
The amended BoZ Act is expected to enhance the bank’s operational independence
complemented by the new Banking and Financial Services Act (BFSA), whose implementing
regulations are being finalized. While the banking system is well capitalized, the authorities are
aware that deepening macro financial linkages could contribute to keeping non-performing loans
(NPLs) above prudential norms. In this regard, they will continue to enhance supervision to
mitigate risks. The legal framework for Anti-Money Laundering/Combating the Financing of
Terrorism (AML/CFT) which was revised and strengthened in 2017, in line with FATF, is also
useful in supporting the authorities’ anti-corruption efforts. Zambia recently underwent an
evaluation which was largely positive, and recommendations thereof are being undertaken.
Structural Reforms
13. The authorities realize that far reaching structural reforms will be necessary to
complement macroeconomic policies, promote inclusive growth and reduce poverty in the
4
context of the 7NDP which emphasizes agriculture, tourism, energy, and mining as the drivers of
diversification. In agriculture, one of the labor-intensive sectors, the authorities developed the
Zambia Integrated Agriculture Management Information System (ZIAMIS) to support agri-
businesses, farmer expansion and extension services for agriculture-related public programs. In
addition, they are implementing measures aimed at raising productivity and building resilience as
well as improving the delivery of the Farmer Input Support Programme (FISP).
14. The 7NDP highlights access to markets, ICT, and infrastructure development as key
growth enablers. In this respect, energy supply and transportation infrastructure are identified as
development priorities to address infrastructure bottlenecks. To boost the energy generation
capacity, a few projects are under construction while others are in the pipeline including solar
energy projects that would reduce heavy reliance on hydroelectric power. On pricing, the
ongoing cost of service study would inform electricity tariffs adjustments based on utilization
with appropriate protection for the vulnerable groups. The authorities are also addressing human
capital development through investments in quality education and healthcare systems given their
significance in promoting inclusive growth. Notwithstanding the fact that Zambia compares
favorably with the SSA average on several dimensions of the 2019 Doing Business Indicators,
our authorities continue to take measures to further improve the business environment.
Conclusion
15. The authorities reiterate their commitment to preserving macroeconomic stability

including bringing public debt on a sustainable path. They will continue with efforts to create a
diversified and resilient economy for sustained growth and socioeconomic transformation. To
this end, they look forward to continued collaboration with the Fund, requisite advice and
technical assistance.
Statement by the Staff Representative on Zambia
July 24, 2019
The information below has become available following the issuance of the staff report
SM/19/188. It does not alter the thrust of the staff appraisal.
1. The Honorable Dr. Bwalya Ng’andu was sworn in as Minister of Finance on

July 15th, replacing the Honorable Margaret Mwanakatwe.
2. On July 17th, Minister Ng’andu released an Update on Economic Developments.

Preliminary data indicated the economy grew by 2.6 percent in Q1 2019 compared to the
prior year, and inflation rose to 8.6 percent (year on year) in June. The external debt stock at
end-June was reported at $11.5 billion (inclusive of guarantees), and domestic government
securities and bonds stood at 60.3 billion Kwacha. Gross international reserves stood at
$1.41 billion at end-June, the same level as at end-March. The preliminary balance of
payments estimates for 2018 had also been revised in May, and the revised estimated current
account deficit in 2018 stood at $341.4 million (1.3 percent of GDP) compared to the
previously-estimated deficit of $708 million (2.6 percent of GDP). A more favorable
performance on primary income explains the bulk of the change from the earlier estimate.
3. Spreads on Zambia’s Eurobonds narrowed somewhat in comparison to levels

seen in late May to early July and stood at 1,442 on July 18th. The authorities also
reported having cleared the de minimus arrears earlier reported by France to the Paris Club,
and had begun clearing de minimus arrears to Belgium.

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IMF Country Report No.

• A Press Release including a statement by the Chair of the Executive Board.

• An Informational Annex prepared by the IMF staff.

• A Statement by the Executive Director for Zambia.

• A Statement by the Staff Representative for Zambia.

Copies of this report are available to the public from

International Monetary Fund • Publication Services

International Monetary Fund

© 2019 International Monetary Fund

IMF Executive Board Concludes 2019 Article IV Consultation with Zambia

Zambia’s development strategy has focused on a rapid-scaling up of public investment to address

Executive Board Assessment2

2017 2018 2019 2020 2021 2022 2023 2024

(Percentage change, unless otherwise indicated)

Money and credit

(Percent of GDP, unless otherwise indicated)

Central government budget

Net acquisition of financial

Sources: Zambian authorities; and IMF staff estimates and projections.

projects, and pensions.

RECENT ECONOMIC DEVELOPMENTS __________________________________________________________ 5

OUTLOOK AND RISKS _________________________________________________________________________ 10

POLICY DISCUSSIONS _________________________________________________________________________ 11

STAFF APPRAISAL _____________________________________________________________________________ 22

2 INTERNATIONAL MONETARY FUND

INTERNATIONAL MONETARY FUND 3

droughts in 2015/2016 and 2018/2019 that 7 60

vulnerabilities, Eurobond spreads rose to

Sub-Saharan Africa: Poverty Headcount Sub-Saharan Africa: GINI Index

Source: WEO, World Bank’s WDI, and IMF staff estimates.

4 INTERNATIONAL MONETARY FUND

RECENT ECONOMIC DEVELOPMENTS

INTERNATIONAL MONETARY FUND 5

Box 1. Impact of Drought and Other Climate-Related Shocks

agricultural production for this growing season. With 3

drought affecting Lusaka and Central provinces, which 2

account for about one-third of the national maize output, 1

production of the country’s principal food staple in 2019 is 0

6 INTERNATIONAL MONETARY FUND

Domestic Debt Market

Sources: Bank of Zambia and IMF staff calculations.

INTERNATIONAL MONETARY FUND 7

Credit Growth and Non-Performing Loans

Source: Bank of Zambia and IMF Staff Calculations.

8 INTERNATIONAL MONETARY FUND

Sovereign – Financial Nexus: Intensifying Links

Delayed employees' loan repayments

Source: IMF staff.

$9.5 billion (38 percent of GDP) Total public debt

in 2017 to $11.3 billion Multi/pluri-laterals

(48 percent of GDP) in 2018, Bilaterals

increased from $0.5 billion in Memo: foreign-held LC debt 1/

INTERNATIONAL MONETARY FUND 9

International Reserves (US$ billion) Exchange Rate (RHS)

Source: Zambian authorities.

OUTLOOK AND RISKS

10 INTERNATIONAL MONETARY FUND

A. Reducing Debt-Related Vulnerabilities

Under current policies, public debt is on an unsustainable path (see accompanying

INTERNATIONAL MONETARY FUND 11

conditions should Prel.

ease. Growth would Real GDP growth (%)

pick up starting in Overall balance (cash basis, % of GDP)

and capital inflows,